Although the UK manufacturing sector is still operating at well below pre-recession levels, it must be good news that it is experiencing record levels of growth.


According to the latest Market/CIPS UK Manufacturing PMI there has been a growth of employment and new orders to ' … levels without precedent in the nineteen-year survey history in January, leading to near-record growth in output'.

The Purchasing Managers' Index are taken as a measure of confidence in the future amongst those surveyed. Anything above 50 is positive and the January figure jumped to 62 from December's 58.7 with a full year and a half of positive numbers.

But there has also been a record rate of rise in input costs, which the manufacturers are passing on. This has already been used as a warning of an imminent interest rate rose in response to the inevitable increase in inflation.

But before we get all heated about how well the manufacturing industry is doing and how it will drag us out of recession, remember that it only makes up about 13% of the economy and is starting off from a low base. To put it in context it's like having a whole marathon to run but saying that we've covered the first mile in record time so all's well (so far). It is the services sector, which makes up 75% of the economy, that matters at the moment and the figures for that are out next week.

The report also said that companies were experiencing increased demand from both domestic and overseas markets like the US, Scandinavia, Australia and emerging markets. Bit that 'Inflationary pressures continued to build in January, with substantial increases signalled for both input costs and factory gate prices'.

The Eurozone Manufacturing PMI is at a 9 month high of 57.3, a slight rise from December's 57.1. But once again inflation was indicated as a future problem.

The HSBC China Manufacturing PMIshows that their " … manufacturing sector started 2011 on a strong footing, with both output and new business rising steeply since December". But once again inflation was in the background, "Cost inflation remains strong, despite easing to four-month low".

The picture appeared to be the same across the major countries, a good start to 2011 but inflation in cost prices is a worry.

India – "The manufacturing sector started the year out in style, ……. Input cost inflation continued to accelerate".

Russia – " … strong growth momentum in manufacturing amidst high inflationary pressures should be sustained."

Taiwan – " … the island’s manufacturers and workers are reaping the fruits of stabilizing Western demand. Rising global commodity prices are stoking inflationary pressures which, for now, remain contained".

With inflationary pressures all round costs to the consumer must surely rise. And if that is the case in a UK economy of falling disposable income it looks like we are in for further deprivation and even an interest rate hike sooner rather than later. Countries relying on us to soak up their exports may be in for a rude awakening later this year. And it is not just the UK in this position.

So that begs the question, who in the end is going to buy all these manufactured goods?

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