UK survey indicates ease in manufacturing decline

In a further boost to hopes that recession is waning off, the latest Chartered Institute of Purchasing and Supply's (CIPS) purchasing managers' index (PMI) improved in March, indicating that the pace of decline in the UK's manufacturing sector eased slightly in March as orders and output fell less sharply.

The index, which measures activity in the manufacturing sector, jumped to 39.1 in March from a reading of 34.7 in February.

Although any figure under 50 indicates that the sector is shrinking, the March figures show that the index is back to its best levels since last October, and further declines may not be as sharp as those already endured, analysts said.

''UK manufacturers voiced a sigh of relief as March PMI data posted its highest reading since last October,'' Roy Ayliffe, director of CIPS, said.

''However, with purchasing managers still concerned over falling levels of production and weak demand, it's clear we aren't out of the woods yet. If anything, latest data serves to highlight how badly the sector fared around the turn of the year,'' he said.

The study suggest that the falling pound was a strong factor in boosting demand for British goods with the new export orders index rising to 39 in March, the highest since August last year. Sterling has lost more than a quarter of its value against other currencies in the past 18 months.

The findings came on the heels of recent, modest improvements in mortgage approval levels and consumer confidence. On Monday, figures from the Bank of England revealed that the number of mortgages approved for house purchase had jumped by 19 per cent during February with a total 37,937 home loans approved.

The figure was well above the six-month average of 31,500 and the highest level since May last year.

According to property intelligence group Hometrack, house prices in England and Wales fell at their lowest level for ten months. The average house is now worth £150,050, down nearly 20 per cent from the market peak in October 2007.

Separate official figures also show that the profitability of companies in both services and manufacturing actually rose in the last quarter of 2008.

Gauged by the ''net rate of return'' earned on capital invested, profitability in manufacturing rose to 8.5 per cent in Q4, from 4.3 per cent in the previous three months. In services, Q4 profitability climbed to 15.8 per cent, from 15.3 per cent. However, the gross operating profits of companies in 2008 as a whole were still down by 2.6 per cent in the services sector and by 6.4 per cent in manufacturing.

The Office for National Statistics said that the net rate of return by private non-financial corporations in Q4 was 12.8 per cent, compared with the revised estimate of 13.7 per cent in Q3.

However, fears over recession in the eurozone mounted after official figures showed unemployment soaring across the bloc. The number of job losses in the eurozone leapt by 319,000 during February, adding to a total jump of 1.6 million in the past six months.

The jobless rate in the zone climbed from 8.3 per cent in January to 8.5 per cent of the workforce in February, reaching its highest since May 2006. The unemployment rate is expected to surge to more than 10 per cent in the coming months.

Global output likely to fall
Meanwhile, two international agencies have warned that global output will fall in 2009 for the first time since World War II.

Euro-zone data on Tuesday showed inflation at 0.6 per cent in Europe's single-currency area for the year through March, the lowest level since official records began in 1996. In the US, home prices fell 19 per cent in January compared with a year earlier. Japan's business-confidence fell to an all-time low in data released by its central bank early on Wednesday, a day after the jobless rate there rose to a three-year high.

All together, the world economy will shrink by 2.75 per cent this year, the Organization for Economic Cooperation and Development (OECD) said.

The World Bank issued a slightly smaller downgrade of the global economic outlook Tuesday, projecting a contraction of 1.7 per cent. Both institutions forecast a steep and damaging plunge in 2009 world trade, the World Bank at 6.1 per cent and the OECD more than double that.

"The world economy is in the midst of its deepest and most synchronised recession in our lifetimes," OECD chief economist Klaus Schmidt-Hebbel wrote in the report. The OECD projected unemployment in 30 industrialised countries will jump to near double digits, from 6 per cent last year.(See: OECD expects GDP to shrink 4.3 per cent; jobless at 10 per cent) 

The World Bank expressed concern especially about developing countries, noting that though their output isn't generally falling into negative territory like the developed world, they feel the effects more severely.

Annual inflation in the euro zone fell to 0.6 per cent in March, far below the ECB's ceiling of 2 per cent.