The purchasing managers survey indicates that life got better for UK manufacturers at the start of 2012 after a pretty dismal end to 2011. Not only does the survey show output rising at the fastest rate for 10 months but also orders grew for the first time in seven months. This suggests that there is a very decent chance that the manufacturing sector will return to growth in the first quarter of 2012 after contributing significantly to overall GDP contraction of 0.2% quarter-on-quarter in the fourth quarter of 2011.

However, whether or not the UK can avoid further contraction in the first quarter will depend mainly on what happens to services output and consumer spending.

Manufacturers still face very challenging domestic and international conditions, so it remains to be seen whether they can build on their improved start to 2012.

Meanwhile, there was some good news on the inflation front, with input prices falling for a third month running and output prices rises at the slowest rate for 27 months. This supports belief that consumer price inflation is headed down substantially further over the coming months and facilitates further Bank of England quantitative easing in February.

James Knightley, senior economist at ING
The UK manufacturing PMI has come in strong, offering some encouragement that the likely recession may not be as deep as some analysts fear. The headline index has rebounded to 52.2 in January from 49.7 in December, leaving the index at its highest level since April last year. Importantly, new orders rose to their highest level since March last year, which bodes well for production data in the next couple of months. The report also states that there has been an increase in the willingness of businesses to spend, thereby potentially offering hope for investment and hiring. Nonetheless, with consumer spending still accounting for nearly two thirds of UK GDP, we still predict a negative quarter of growth in the first quarter of 2012, which would confirm a technical recession.

Samuel Tombs, UK economist at Capital Economics
January’s UK CIPS report on manufacturing adds to evidence that the industrial recovery got back on track at the start of 2012. The rise in the overall PMI from 49.7 to 52.1 – its highest level in eight months – was driven by a sharp increase in the survey’s output balance from 50.2 to 55.8. On the basis of past form, the output balance is now consistent with quarterly growth in manufacturing output of close to 1%. Accordingly, the CIPS survey supports the upbeat message painted by last week’s CBI industrial trends survey, which pointed to a similar rate of growth. Nonetheless, there are signs that this quite rapid growth will not be sustained. For a start, stocks of finished goods reportedly rose for the first time in April 2008. In addition, the new export orders balance fell back from 53.4 to 51.0, suggesting that overall growth is now largely dependent on domestic demand. But with consumer and investment spending likely to struggle this year, we doubt that this will provide a sustainable foundation for growth in the year ahead.

David Tinsley, UK economist at BNP Paribas
We have some very good news from the UK manufacturing PMI for January. The headline index ‘soared’ to 52.1, up from 49.7 in December. That was the highest index since April 2011 and well above the market expectation.
In the detail, the output index rose to a 10-month high, as new orders rose from both domestic and foreign buyers. Markit/CIPS report that demand rose from clients in Brazil, China, the Middle East and China.
Input prices declined for the third month in a row and the rate of deflation was the steepest since June 2009. Output prices rose, but the rate of increase has slackened considerably.
We believe that the UK will avoid recession and post some positive, if moderate, growth in the first quarter. This number supports our view. It’s clearly early days, but the outlook for the economy has distinctly improved over the last few months. While we don’t expect that to be sufficient for the MPC to question the wisdom of more QE in February, if it continues it will draw into focus the possibility that a further extension beyond that will start to look less likely.

Lee Hopley, chief economist at EEF, the manufacturers’ organisation
The one positive for manufacturing from last week’s GDP data was that output expanded modestly in December, with growth appearing to have continued into the new year indicating modest expansion in the sector. Whilst this is not a return to the strong growth seen earlier in the recovery it is a rebuttal to fears that manufacturing is sliding backwards with the mood in the sector being one of cautious optimism.

Michael Saunders, economist at Citi
The rise in this index, if confirmed in other readings in coming weeks and months, hints that the UK may escape a renewed recession, having already had a decline in GDP in the fourth quarter. Nevertheless, in our view it would be premature to conclude that the economy is out of the woods.
It must be stressed that even if the economy does not shrink further, the current recession/recovery cycle is already worse than those of the 1930s, 1970s, 1980s and 1990s and indeed is the UK’s worst of the last 100 years, excluding the first and second world wars.
Moreover, the economy continues to face powerful headwinds, with UK private debts still very high, marked weakness in the euro area and many years of public spending cuts ahead in the UK. Sizeable further job losses remain likely in both the private and public sectors. The case for further monetary stimulus in the UK does not rest on whether the economy goes into renewed recession or not, but is driven by the prospect of (a) sluggish growth (at best) after the deep downturn that already has occurred; and (b) a sharp drop in inflation.

Blerina Uruci, economist at Barclays Capital
The improvement in the new orders measure was mainly a result of increased domestic demand, while the export orders sub-index fell to 50.9 (from 53.4). The recent fall in the export orders measure brings it more in line with the economic weakness in the euro area over recent months.
The survey indicated that manufacturing employment grew marginally in January. The employment sub-index rose to 50.1 (from 49.6), as small businesses increased payroll numbers while marginal job losses were seen at larger companies. Nevertheless, the uncertain economic outlook and the need for cost reduction continue to cast a shadow over hiring plans.