UK Economy

Factory activity at 25-month high

A worker examines bags of finished recycled plastic material flakes at the Closed Loop recycling plant in Dagenham east London February 17, 2009. REUTERS/Luke MacGregor

LONDON (Reuters) - Manufacturing activity expanded at its fastest pace in more than two years in December, buoyed by a sharp jump in new orders, a survey showed on Monday.

The CIPS/Markit purchasing managers’ index rose to 54.1 last month, above the consensus forecast of 52.0 and after a surprise fall to 51.8 in November.

The figures suggest Britain’s economy ended the year on a strong footing and will boost expectations that manufacturing made a positive contribution to growth in the fourth quarter.

“December PMI data signal a positive end to a tumultuous year for UK manufacturers,” said Rob Dobson, senior economist at Markit.

“The outlook is somewhat clouded given the uncertainty of the timing of fiscal and monetary stimuli withdrawal but the momentum and broad-base of the recovery should hopefully aid sustainability.”

Particularly encouraging was a 4 point rise in the new orders index to 57.4 -- its highest since July 2007. Firms linked the rise to improving market conditions and retailers rebuilding stocks.

The increase was driven by the domestic market, as growth of new export orders was only slight.

The pace of job-shedding in the manufacturing sector was the weakest since May 2008 and mainly centred on large sized companies. Small and medium-sized firms reported a slight increase in staffing levels.

The recovery in activity coincided with a increase in price pressures, particularly from raw material costs. Average input prices costs rose at their fastest rate in 15 months but output prices rose more slowly as competitive pressures remained intense.