Britain's manufacturing sector surprisingly returned to growth in January, as companies cranked up production driven by new orders, stirring hopes the country will skirt recession.



We thought we'd see a gain because the trends in the euro zone and U.S. equivalents suggested some upside, but we didn't think it would be as big as this.

Historically, the surveys have tended to provide a better indication than the official data. It gives me some encouragement, but I don't think this is necessarily telling us the economy is embarking on a full-scale recovery. But in terms of the debate over whether we're sinking back into recession, these numbers go against that and cast doubt on some of the numbers the ONS is publishing at the moment.

I don't think this fundamentally changes the Bank's decision on QE. They have acknowledged and detected an improvement in the forward-looking numbers. But ultimately, the QE decision is based primarily on the inflation projections. I still think that given the starting point of the November forecast, we would still expect the February projections to show a significant undershoot. Given the combination of weak official data now and falling inflation, that gives them a window in which it is quite easy for them to announce more QE. But it's by no means a done deal. There's significant uncertainty about the quantity and the rate at which they make the purchases.


The UK manufacturing PMI has come in strong, offering some encouragement that the likely recession may not be as deep as some analysts fear.

Importantly, new orders rose to their highest level since March last year, which bodes well for production data in the next couple of months.

The report also states that there has been an increase in the willingness of businesses to spend, thereby potentially offering hope for investment and hiring.

Nonetheless, with consumer spending still accounting for nearly two thirds of UK GDP, we still predict a negative quarter of growth in 1Q12, which would confirm a technical recession.

(Reporting by London bureau)