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UK manufacturing activity hits 8-month high

The UK manufacturing sector powered ahead in March, suggesting the economy is now on course for a healthy expansion in the first quarter of this year.

The purchasing managers index for manufacturing, compiled by data firm Markit, hit an eight-month high in March, climbing to 54.4 from 54 in February. The main reading was in line with expectations, but new orders surged from 56.4 to 57.9.

The figures come just a day after the Office for National Statistics upgraded its estimates for growth last year to 2.8 per cent. A slowdown in January - with production, services and construction all contracting - had raised fears the economy might have slowed down ahead of May's general election, but Wednesday's figures should help abate these concerns.

While the domestic market remained the main source of new contracts, there was also good news for exporters, which saw overseas demand grow after a small dip in February. The surge will help to soothe worries about the impact that the exchange rate is having on UK factories. The pound has recently strengthened against the euro, potentially damaging exports to Britain's largest trading partner.

"The PMI suggests that, if anything, the sector has stepped up a gear at the start of this year," said Lee Hopley, chief economist at EEF, the manufacturers' organisation.

"While the story of healthy domestic demand has become familiar over the past year or so, evidence is also mounting that the sector's export prospects are finally turning a corner," he added.

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>Manufacturing employment climbed for the 23rd consecutive month in March, according to the survey, hitting a record high of 73 per cent. There are also signs that wages may have begun to pick up after a long phase of stagnation.

The domestic recovery was largely driven by a surge in the consumer sector, which is expected to continue in the coming month. Retail sales were particularly strong in February, as consumers made the most of the slump in inflation, which fell to zero for the first time in at least half a century. Capital goods producers also had strong performances.

"The outlook for manufacturers seems pretty healthy on the domestic demand front, especially for consumer goods," said Howard Archer, an economist at IHS Global Insight.

"Elevated consumer confidence, markedly improved consumer purchasing power and rising employment should underpin demand for consumer durable goods," he added.

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