The beleaguered manufacturing sector is finally showing some signs of life, with a survey reporting the first rise in activity since March last year.
The Chartered Institute of Purchasing & Supply's (CIPS) headline measure of the sector posted 50.8 in July, above the neutral 50 mark and well ahead of City expectations.
Production rose for the second successive month and to the greatest extent since December 2007, helped by a recovery in new orders, the survey added.
CIPS chief executive David Noble said: “The manufacturing sector has clearly pulled out of the nosedive it was in earlier this year and is no longer plummeting.”
He said customers slashed inventories so severely in the downturn that they were now in need of new stock in order to meet improved sales.
Mr Noble warned yesterday that it was still early days and said smaller firms continued to bear the brunt of the recession.
The research also found manufacturing employment declined for the 15th month running in July, although the rate of decline was the slowest since June last year.
Howard Archer, an economist at IHS Global Insight, said the competitive pound was helping the sector by making UK manufacturers stronger in their domestic markets as well as helping exporters. However, he sounded a note of caution, particularly as the CBI industrial trends survey for July showed a marked relapse in orders.
Mr Archer added: “Manufacturers still face serious obstacles and the suspicion remains that sustainable growth in the sector could yet prove elusive for some time to come.
“While leaner stocks and a more competitive pound have improved their position, manufacturers are still battling against muted domestic demand, difficult conditions in overseas markets and intensified competition.”
Companies also reported lower costs for commodities, food products, paper and steel.
Hetal Mehta, Ernst & Young's senior economic adviser, said there was an increasing chance that the economy will pull out of technical recession by the end of the year, particularly if the services data show a similar improvement.