Manufacturers' misery continues but housing demand rises

Britain's hard-pressed manufacturers shed jobs for the 11th month in a row in February as they sought to cope with sagging export orders and a sharp rise in the cost of fuel and raw materials, according to a report released yesterday.

The monthly overview of industry from the Chartered Institute of Purchasing and Supply suggested firms were stuck in a low-growth environment, with the pace of expansion easing slightly last month.

Roy Ayliffe, director of professional practice at the CIPS, said: "A lack of new orders from abroad means the sector is undergoing a period of consolidation as companies continue to maintain production growth whilst trimming excess capacity and raising efficiency. Manufacturers continue to face spiralling costs, which are squeezing companies' operating margins."

The CIPS purchasing managers' index came in at 51.7 in February, down on the 51.8 recorded in January. A figure above 50 indicates manufacturing is expanding.

In a month when oil prices were on average above $60 a barrel, industry was faced with the fastest rate of input price inflation in more than a year. The CIPS said there were "widespread reports of increased energy costs, whilst the prices of a number of commodities including metals, chemicals and plastics were higher than in January". Firms cut jobs in an attempt to boost efficiency and profitability.

Lending figures from the Bank of England showed mortgage demand in January remained steady at the high levels recorded in December. The number of home loans approved in January stood at 122,000, up 49% on the same month in 2005.

Kelvin Davidson, property economist at Capital Economics, said strong annual growth rates were inevitable given that late 2004/early 2005 was the trough period for mortgage demand, and it was more noteworthy that January was the first month in which mortgage approvals did not increase since November 2004.

With consumer confidence subdued and the labour market weak, Mr Davidson said, the data looked "consistent with the levelling off that has been apparent in the BBA's [British Bankers' Association's] figures since August last year. However, that is not to say mortgage approvals do not still have some near term strength.

"The RICS [Royal Institution of Chartered Surveyors] continues to report healthy levels of new buyer inquiries, while housebuilders have experienced an improvement in site visits in recent months."

Alan Castle at Lehman Brothers said: "What has effectively been a loosening of credit conditions has led to strength in a number of macro economic housing indicators, as well as renewed momentum in the buy-to-let market."