Business

UK factory index sees surprise jump as orders rise

Domestic orders boosted manufacturing in August
Image caption Domestic orders boosted manufacturing in August

The downturn in UK manufacturing unexpectedly eased last month as domestic orders boosted output.

The closely-watched Markit/CIPS manufacturing purchasing managers' index rose to a four-month high of 49.5 in August from a downwardly revised 45.2 in July.

But since the figure is still below 50, the sector is still shrinking.

In contrast, figures for China and the eurozone showed manufacturing output shrinking again in August.

In the 17-country eurozone region, output was below the 50 mark for the 13th successive month, indicating continued contraction.

In China, manufacturing activity fell to a nine-month low last month, adding to fears that its economy is slowing faster than estimated.

In the UK, orders remained overall in decline, but saw their sharpest monthly jump since the survey began in 1992.

"The marked easing in the rate of contraction at UK manufacturers is heartening," said Rob Dobson, economist at survey compiler Markit.

However, Dobson said that current demand for goods was still too "lacklustre" to provide a sustained recovery in the sector.

Confidence 'draining'

A separate survey by manufacturing body EEF, looking at conditions over the past three months, found that trading conditions were the toughest since early 2010.

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Media captionEEF's Andrew Johnson: "Demand from emerging markets is weakening"

It said slower demand for goods both in the UK and overseas had hit orders, with UK orders at their weakest level in over two years.

The EEF said confidence in the sector was "draining away". It now expects manufacturing output to contract by 1.5% in 2012.

However, it expects manufacturing output to rebound by 1.5% in 2013.

EEF chief economist, Lee Hopley, said the sharp drop in export balances was a "particular concern", due to the UK economy's reliance on exports as a source of growth.

"The risks of a more prolonged period of weak growth in global markets, which would continue to make economic rebalancing an uphill struggle, can't be ruled out," she added.

Tom Lawton, head of manufacturing at business advisers BDO, which conducted the survey alongside the EEF, said the continuing turmoil in Europe was weighing on the sector.

However, he said it was positive news that manufacturers were continuing to invest.

"This indicates that manufacturers have learnt the mistakes of the past and are preparing themselves for an upturn in the market, whenever and wherever this may occur," he said.