Manufacturing activity dropped back in January despite a strong rise in factory output that could indicate a sustained if slow recovery in the sector.
The Markit/CIPS manufacturing index fell from 51.2 to 50.8 in January on the previous month, which was expected by economists after a surge in December.
Employment rose slightly on the pre-Christmas period as output jumped to 54.2, where a figure above 50 shows an expansion in activity.
A slowdown in new orders growth was the main blot on the sector’s horizon, dragged down by a contraction in new export orders that stretches back to the first euro crisis in the summer of 2011.
The unsettled picture across the continent has proved a major barrier to the manufacturing industry’s recovery, alongside a fall in domestic demand.
However, a slow recovery in the euro area in January following a string of improved figures, France notwithstanding, spells a more settled period for the sector and the potential for a more sustained period of growth.
Annalisa Piazza, analyst at Newedge Strategy, said: “Less pressures from the euro area will help a modest increase in activity in 2013 and UK companies will probably start to increase their stocks and revise their investment plans.”
James Knightley, UK economist at ING Bank, said that while the drop in activity was greater than expected, the increase in output “offers hope that the GDP contraction in the fourth quarter of 2012 will not be repeated in the first three months of 2013”.
He said: “Order books are also looking OK so we are hopeful of another positive manufacturing figure in February and March.”
Lee Hopley, chief economist at EEF, the manufacturers’ lobby group, said the PMI offered a brighter picture.
“There are reasons to believe this expansionary trend could be maintained in the coming months with European indicators at least stabilising, emerging market activity improving, and a weaker sterling helping some sectors in overseas markets,” he said.