According to the data released by the closely watched Purchasing Manager’s Index (PMI) for manufacturing, UK continues to its march on the path to economic recovery with strong growth in exports and employment.
The PMI manufacturing reading remained unchanged at 61.5 from January for the second straight month in February. Any figure above 50 indicates an expansion in the sector.
While new orders and output levels dipped slightly from January’s record level, they are still growing fast. Production of capital goods declined sharply while consumer and intermediary goods continued to grow at a feverish pace.
High input costs have driven factory gate inflation at near record highs while employment continued to grow at the fastest rate since the survey began in early 1990s.
The strong manufacturing growth supports the perception that the shock contraction of the economy in the last quarter of 2010 was an aberration due to severe winter conditions, although it had hit the services sector more.
Manufacturing was one of the worst hit sectors of the economy during the recession and a fast expansion raises hopes of rapid job creation. However, since industry contributes only 13 percent of the economy’s total jobs and non-governmental services contribute 52 percent of jobs, a recovery of the service sector is more important.
Rising commodity prices worldwide – especially due to demand from emerging economies like China, have triggered a demand-push-inflation to twice the target rate and put pressure on the central bank to raise interest rates.
The industry had to absorb higher costs of input materials like timber, minerals, oil, cotton, plastic etc. without passing them on to consumers due to weak demand.
David Noble of Chartered Institute for Purchasing and Supply said: “Strong growth in demand across the manufacturing sector continued to put breath in the sails of the UK economy in February.
“The fly in the ointment remains macro-level inflation which is likely to go from bad to worse due to the unrest in Libya and escalating oil prices”, he added.