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UK manufacturing shows signs of strengthening

LONDON (January 5, 2010) -- Hopes for a better year in 2010 have been raised by an economic indicator showing that UK manufacturers increased activity in December. The monthly CIPS/Markit purchasing managers' index (PMI) rose to 54.1 last month, the fastest expansion rate since before the start of the recession. Rob Dobson, senior economist at Markit, said: "December PMI data signal a positive end to a tumultuous year for UK manufacturers." "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." The PMI provides a quick snapshot of manufacturing in the previous month – a figure above 50 showing growth in activity. Official statistics for manufacturing production in November and December have not yet been published. National Statistics compiles the Index of Production, which for the category on manufacturers of rubber and plastic products showed a figure of 86.7 in the third quarter of 2009, up by 1.5 points from the second quarter, but down from 97.6 in the third quarter of 2008 (base year is 2005). Reuters reported comments from economic analysts, whose PMI consensus forecast had been 52.0. "Clearly the PMI manufacturing survey was significantly stronger than expected,” said Mark Miller, economist at Lloyds TSB Corporate Markets. “Yes it's an encouraging number, taken alone. But an awful lot depends on global economic growth this year and whether UK manufacturers can continue to export reasonably successfully.” A major reason for the strengthening in December was an increase in orders in the UK, which firms in the PMI survey linked to improving market conditions and retailers rebuilding stocks. A report by BDO and EEF suggests the recession has concentrated a trend for the return to the UK of some production that had previously been relocated overseas (confirming reports published in PRW last year). The BDO/EEF Manufacturing Advantage survey shows 14 percent of companies have brought production back to the UK in the past two years. The three main reasons for this are: cost savings were not as great as expected; the required quality was not achieved overseas; and the speed of getting products to market was not good enough. “The recession has put pressure on companies to evaluate where is best for manufacturing functions and if previous decisions on location have been successful or need to be reconsidered,” the report said. The findings do not mean companies will completely reverse decisions to offshore production, but the best place to manufacture is not always in low-cost economies, the report said. The research also pointed to three key areas for manufacturers who are seeking a global competitive edge: design and development; service provision; and production and assembly. On average, 12 percent of UK manufacturers’ revenue is now derived from services.