Strong orders for manufactured goods across Europe led to backlogs of work for the first time since mid-2011

Manufacturing 'surge' in UK and Eurozone

A “surge” in activity at UK manufacturing firms has been mirrored by the fastest rise in European factory activity in more than two years.

A new report from EEF, the manufacturers’ organisation, said a survey of almost 300 companies showed an improvement in the domestic market, which has often lagged behind exports, as well as uncovering that more firms are also planning to invest in their business.

And the positive news seems to be being repeated across the Eurozone as a report from survey compiler Markit showed that strong orders for manufactured goods contributed to August’s rise in factory activity and led to backlogs of work for the first time since mid-2011.

EEF chief economist Lee Hopley said: "Industry's prospects have brightened considerably in the past few months and it's particularly positive that this improving trend can be seen across all manufacturing sectors.

“There is growing confidence that improving trading conditions will continue into the final months of this year and then accelerate through the gears in 2014.

"However, while the signs of recovery that have emerged so far this year are positive, the need for better balanced growth from net trade and investment remains a necessity. As companies become more confident about their growth prospects, we need to see this translate into commitments to invest in new capacity, and for this to take place in the UK."

Tom Lawton, of business advisory firm BDO LLP, which helped with the study, added: "A domestic market at its strongest for almost three years, backed by export sales at a two-year high, means UK manufacturers across all sectors and throughout the supply chain are feeling the benefits of an impressive return to confidence."

The Markit report showed that new orders came in at their quickest rate since May 2011, suggesting the momentum will continue, and the organisations Manufacturing Purchasing Managers' Index (PMI) jumped to 51.4 from 50.3 in July – the first month the index had been above the 50 line that signifies expansion since February 2012.

"Although gains are still only modest, companies reported the strongest improvement in business conditions for just over two years, with a pick-up in new orders growth suggesting the upturn will be sustained into September," said Chris Williamson, Markit's chief economist.

But the PMI also showed manufacturers reduced their staff headcount for the 19th month in August and at a sharper rate than in July.

"The fact that companies remain reluctant to take on staff, due to the need to cut costs to boost competitiveness and offset rising oil prices, suggests that there's a long way to go before the recovery feeds through to a meaningful job market improvement," Williamson said.

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