Developing

Manufacturing Uplift As Optimism Grows

Manufacturing activity increased at the fastest rate in 10 months, indicating that prospects for growth have improved and the UK could avoid a recession.

The manufacturing purchasing managers index (PMI) rose to 52.1 in March, its highest level since May, driven by an increase in new orders.

The PMI has been above 50, the level separating expansion from contraction, since December, and the figures for March indicated a 0.3% growth in manufacturing output in the first quarter of the year.

Business confidence about the UK economy also surged according to three separate surveys, indicating that eurozone fears have eased and the nation's firms expect conditions to improve.

Speaking on Jeff Randall Live, Professor Moorad Choudhry, treasurer at RBS Corporate Banking, said the good economic news boosted hopes of a positive GDP figure for this quarter.

"There are some good indications both in the service sector and in the manufacturing sector as well. 

"So I don't expect a negative GDP number in quarter one this year - there will be no technical recession. But also we can expect some growth improvement in the remainder of the year," he said.

Prof Choudhry added that the summer's Olympic Games should add to the UK's output.

A monthly report by Lloyds Bank found that confidence reached a nine-month high in March, with more than half the businesses polled feeling positive about the nation's outlook for the first time since June.

Meanwhile optimism has risen at the fastest rate in nearly five years among company finance directors according to a survey by Deloitte.

The proportion of finance chiefs who expect a double dip recession has fallen to 30%, down from 54% in December, the poll said, while the number of executives expecting one or more members of the eurozone to exit this year has dropped to 26%, from 37% last quarter.

But 84% still felt there was an above-normal level of uncertainty facing their businesses amid record petrol prices, rising concerns about the pace of debt reduction in Spain and weak growth in the UK.

Corporate strategies remained cautious, with most finance officers aiming to maintain higher cash balances than before the recession.

Deloitte chief economist Ian Stewart said one interpretation is that relatively high levels of cash being held by UK corporates would act as an insurance policy against a volatile, slower-growth environment.

The financial services sector, which accounts for approximately 8% of Britain's economy, saw its first rise in optimism in a year, a survey by PwC and the CBI said.

Employment rose unexpectedly, with firms indicating they will raise headcount further in the next few months, and the volume of business grew for the eight consecutive quarter.

CBI economist Ian McCafferty said: "The unexpected rise in employment is a further encouraging sign for the sector. But with the current level of business regarded as below normal, conditions still remain challenging for financial firms."

However overall economic activity is already beginning to pick up, the Lloyds survey suggested, and gross domestic product is expected to expand by the second half of the year.

The economy could see a two-speed recovery, BDO warned, with companies dependent on the UK high street fighting not to be left behind.

The accountancy firm said the gap is set to widen between firms that tap into export markets and sell online, and those that rely solely on the high street.