Manufacturing beat expectations in December, showing signs of stabilising after a two-month decline as orders from China and Germany picked up, although the risk of another recession persists, a survey shows.
TOM VOSA, NATIONAL AUSTRALIA BANK
There's been a moderation in December. Output is still falling but it's falling at less of a pace as a whole. Weakest reading since the second quarter of 2009. Remember, service sector output is a lot stronger than we had at that stage when the economy was coming out of (recession).
This is all consistent with the economy growing just about in the fourth quarter. Contraction in manufacturing, rally in service sector output and we also think some slightly stronger construction data because it's been warmer weather, particularly compared with last year.
By the skin of the teeth, we should escape a double-dip recession but we're still looking at growth over this year and next of around 1 percent.
PHILIP SHAW, INVESTEC
The improvement in the PMI is welcome. Nonetheless, it seems to be due to firms eating into backlogs of work to keep output up, in which case the sector remains vulnerable to a sharper downturn over the coming months.
Our central view is that the economy as a whole will experience a short recession. Whether the weakness in manufacturing is short and sharp or longer lasting remains to be seen.
In terms of policy implications our view of 2012 isn't much different from the (government forecasting body) OBR's, perhaps a little weaker if anything. Unless this changes materially we would expect the chancellor to maintain plan A.
The monetary policy outlook is somewhat easier. We are expectation more QE next month and also in May, and we are not looking for an increase in interest rates for quite some time.
ANNALISA PIAZZA, NEWEDGE STRATEGY
The UK manufacturing sector remained weak in December, according to the CIPS manufacturing PMI index. However, the pace of decline is slower than in the previous two months when activity seemed to be in a deep contraction mode.
The 2-point 'improvement' seems to suggest that the UK manufacturing sector is not on a verge of a deep collapse. Indeed, the overall index is more than 15 points higher than in early 2009, when the economy was in a deep recession.
That said, the UK manufacturing activity remains at risk in the coming quarters. The sector is highly dependent on exports to the euro area and the EMU crisis poses increasing risks to the sector. We expect manufacturing production to have contracted by around 0.5 percent q/q in Q4, leading to a modest -0.1 percent q/q contraction in GDP.
ROSS WALKER, RBS
It's a stagnation type number.
The levels in the last couple of months were signalling a pretty aggressive contraction, which I thought was maybe exaggerating what we'd see in the official data.
But historically it's been a pretty good guide. So the fact that we have broad stabilisation is probably the best we can hope for.
A quarterly contraction (in factory output) still looks likely, but on the basis of the December number it's maybe not going to be quite as severe as we feared.
For GDP - though we'll have to see what the services PMI says - we've just about got our heads above water.
The first half of the year will be very difficult, in large part because of the difficulties in the euro area. Things may bet getter over the year as a whole, but I don't think we're going to see any step change in Q1 or Q2.
(Reporting by London bureau)