Manufacturing growth slows

BRITAIN'S manufacturing industry entered 2005 in rude health with orders growing at their fastest rate in five months but growth in December was lower than forecast, prompting fears that the pace of growth might not be sustained.

Figures out today showed that UK manufacturing growth slowed down in December although this was compared with a particularly strong rate in November. Research by the Chartered Institute of Purchasing and Supply and NTC Research showed broad strength in manufacturing and appeared to cast doubt on official data that is much less upbeat.

The weakness of the dollar is likely to boost British exporters to the US although growth in output in consumer goods industries slipped to its slowest pace since June 2003. Intermediate goods output, which makes up the majority of British manufacturing production, along with investment goods, partly offset this weakness.

The Chartered Institute of Purchasing and Supply and NTC Research said their purchasing managers' index for manufacturing slipped to 53.7 last month from 55.0.That compared with consensus expectations of 54.4 and was well above the 50 mark that divides expansion and contraction. The production index fell to 54.7 in December from 57.1.

But in a sign that manufacturing production is likely to hold up well into the New Year, the new orders index edged up to 55.5 from 55.2, the highest since July. New export orders grew for the fourth consecutive month, although at roughly the same pace as November, with companies reporting Europe and the Far East as top destinations.

Analysts were divided as to the significance of today's figures, though most admitted that the slowdown in December order growth was disappointing. David Page of Investec commented: 'The headline number was slightly disappointing coming in lower than expected. There seemed to be two areas of weakness, the output fell back sharply and employment was also softer. I think the encouraging news is that orders numbers were reasonably firm, both in total but also export orders and that is encouraging looking forward. However that is pretty much the silver lining on a dark cloud today.'

Robyn Barnett of UBS in London added: 'Obviously it is a bit weaker than anticipated and the fact that output growth slowed was disappointing, but the new orders data are encouraging and a good sign for the manufacturing sector going forward.'

High oil and steel prices pushed up input costs although the rate of growth eased somewhat in December, pushing the input price index down to 71.5 from 73.6. There was further evidence, however, that companies were gaining more pricing power as the output prices index rose for a fourth straight month to 56.5, the highest since the series began in late 1999.

Today's figures come a day after separate research by Lloyds TSB into the performance of the manufacturing sector in Scotland. A quarterly survey of business confidence in Scotland found more than half (51%) of firms reporting an increase in turnover. Business confidence in Scotland remained high overall, according to Lloyds TSB's quarterly Scotland Business Monitor, with output up for the third successive quarter.

The strong performance of the Scottish economy and business optimism augured well for the New Year, the Scottish Executive said. Enterprise minister Jim Wallace added: 'Scottish GDP continues to expand, the hard hit manufacturing sector is beginning to stabilise, employment is at record levels, and the labour market performance is strong.'