UK manufacturing posts 'fastest 2005 growth rate'

3 November 2005
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03 November 2005 | Rebecca Ellinor

Operating conditions in the UK manufacturing sector showed a further improvement in October with the fastest growth rate so far for 2005 but jobs were still lost as a result of high input prices.

The latest data from the CIPS and Royal Bank of Scotland's Purchasing Managers Index (PMI) shows that supporting the improvement in operating performance were solid gains in output and new orders.

But good operating conditions failed to prevent further job losses, as companies offset higher prices with reductions in staff. Input cost inflation picked up to a seven-month high, reflecting high oil, gas, electricity and steel prices.

The overall PMI - a composite indicator of sector conditions in which an index above 50 indicates growth - registered 51.7, slightly higher than September's 51.5 figure.

Roy Ayliffe, director of professional practice at CIPS, said: "Despite improved conditions, the expected recovery in employment was not realised, as companies reported offsetting soaring input price inflation by reducing their workforces."

Manufacturing production expanded with the seasonally adjusted Output Index posting a reading of 53.1. This was as a result of firms raising output in response to improved levels of incoming new business. Successful promotional campaigns and the launch of new products helped to boost new orders and anecdotal evidence suggested that companies benefited from increased demand from both the domestic and foreign markets.

Although the downturn in employment continued in October, it did so at a slower rate.

Roy Ayliffe, director of professional practice at CIPS, said: "Purchasing managers saw the fourth quarter open with a further improvement in operating conditions in the UK manufacturing sector. This was underpinned by a strong rise in output, which experienced its best performance since January. Growth was also supported by solid gains in new work, bolstered partly by increased demand from domestic and export clients."

The Institute of Supply Management (ISM) in the US posted an index of 59.1 for October, showing growth for the 29th consecutive month. However the ISM said rising prices, and energy costs in particular, are of major concern as manufacturers struggle to control costs.

The RBS/NTC Eurozone Manufacturing PMI rose from 51.7 in September to 52.7 in October, indicating the fourth successive monthly improvement in manufacturing sector business conditions and the strongest rate of expansion in 13 months.

  • Coverage of previous months' manufacturing, construction and services PMI reports is available at www.supplymanagement.com/pmi

  • More information on the UK and euro-zone PMIs is available at www.ntc-research.com

  • The full text of the ISM reports on the US manufacturing economy is available at www.ism.ws/ISMReport/index.cfm

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