The growth rate of the UK’s manufacturing sector slowed in February after January’s unexpected rise.

The Markit/CIPS UK Manufacturing PMI for February dropped slightly from January’s 52 to 51.2. Any figure above the neutral mark of 50 shows expansion, a figure below 50 shows contraction.

The latest figure is disappointing as many had hoped that it would remain broadly unchanged and analysts had predicted a figure of 51.8.

But at least it is still in positive territory maintaining hopes that a technical recession can be avoided by the time we reach the end of quarter one 2012.

Despite inflation being lower than last year manufacturers reported a sharp increase in average input prices for four months, the largest month on month gain for 19 years and the first for four months. “Companies reported higher prices for chemicals, feedstocks, metals, oil, plastics and transportation.” Said Markit/CIPS.

On the selling side companies were reporting that competition and ‘lacklustre’ demand was holding back selling price increases.

Rob Dobson, Senior Economist at Markit and author of the Markit/CIPS Manufacturing PMI® said “UK manufacturers continued to raise production and employment in February, building on the solid foundation seen so far at the start of 2012. This raises hopes that the sector will post an expansion over Q1 as a whole, or at least improve on the disappointing 0.9% contraction seen at the end of last year. However, the latest PMI survey brought the headwinds faced by manufacturers into sharper focus.”

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply said “The manufacturing sector consolidated on January’s sharp increase in growth, but the return of rising oil prices and lacklustre demand is a cause of some trepidation. Whilst the tentative boost in employment is a sign of increased confidence in the sector, this can be attributed to efforts to fulfil the growth in new orders seen at the beginning of the year. Manufacturers have persisted in working through backlogs of work, but the Eurozone crisis continues to loom large with continued declines in new work from the Continent.”

Commenting on the report Nida Ali, economic advisor to the Ernst & Young ITEM Club, said “Any hopes for a further improvement in the manufacturing PMI, on top of last month's high, would have been optimistic. Given the numerous headwinds buffeting the sector, the continued expansion of output in February provides a crumb of comfort.

With new orders remaining broadly unchanged, while production was largely supported by clearing out backlogs of work, there is clear evidence that underlying demand is weak. Against this backdrop, we would expect growth in the sector to slow in the coming months.

UK manufacturers' fate is closely tied to developments in the Eurozone and the survey reports that demand from Europe declined. The ongoing Eurozone debt crisis continues to pose a significant downside risk to the sector, and the struggle for manufacturers is far from over.

However today's figures make the chances of a technical recession now lower than ever, and GDP growth will probably post a small positive in Q1.

The Markit/CIPS UK Manufacturing PMI® is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 600 industrial companies.
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