Take the good with the bad

It looks like more good news for the British economy as manufacturing activity has expanded at its fastest rate in three months during October this year. As is often the case though, good news comes with a downside as we have also seen low demand from Eurozone countries which has been reflected in export orders. The PMI (Purchasing Managers Index) rose from 51.5 to 53.2 its highest level since July, conversely export rates to Eurozone countries dropped at their fastest rate in 21 months. Even with this in mind, it is still good news for the British economy. According to the Boston Consulting Group the UK is now one of the cheapest locations for manufacture in the western hemisphere, this has been aided by British car manufacturing, which has seen resurgence in recent years. This recovery albeit it promising is still fairly slow, latest official figures show that factories are still producing 8% less than they were in their peak; the fourth quarter 2000. Assisting this recovery is the UK’s wage costs, they are up by 16% over the last ten years, and with the chancellor’s corporation tax cuts, overall costs have been contained and the labour market is far more flexible as a result. Compared to German manufacturing, whose growth was modest at best, and Italy and France who saw a drop in manufacturing rates, Britain still looks on track to lead the way to recovery. The Bank of England looks set to leave interest rates at the record low of 0.5 percent for the time being, and with lower raw material costs and strong competition the outlook for the UK economy should be a good one. We just need to be mindful that export orders are key to growth, and as Mike Rigby, head of manufacturing at Barclays points out: “Overseas markets have long been viewed as a crucial component for improved UK economic growth, but this current lack of penetration could hamper the ability of manufacturers to lead the recovery as we move towards 2015.”

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