BRITAIN’S battered manufacturing sector is struggling to gain momentum for expansion, even as the eurozone’s industrial recovery forges ahead.

According to the CIPS/RBS purchasing managers’ index (PMI), which provides an early snapshot of economic conditions, manufacturing grew at an almost unchanged pace in December from the previous month. The headline PMI was 51.1, on a scale where any figure above 50 indicates rising activity levels, compared with 51.0 in November.

By contrast, the equivalent PMI survey for the eurozone showed a marked improvement, rising to 53.4 in December from 52.8. There were also signs of the first rise in the size of the manufacturing workforce for more than four years.

In an additional piece of good news for the eurozone, Germany announced that its official unemployment level fell by 110,000 in December.

Britain’s PMI survey did mark the fifth consecutive month of expansion in industry, underpinned by relatively strong output growth.

However, employment fell again in the sector, with the sub-index for employment at 46.9, up from 46.6 in November but still indicating that British industry is shedding jobs. The parallel measure for the eurozone showed the first rise in manufacturing unemployment since May 2001. The employment indicator rose to 50.3 in December from 49.9.

Several analysts noted that the British figures suggested a pick-up in inflationary pressures. The input prices index rose to 61.9, its highest level since last March, while the output prices index rose to 52.2, a three-month high.

Ross Walker, of RBS Capital Markets, said that the combination of weak growth in activity and an increase in pipeline inflation made the British figures “a fairly neutral survey” for interest rates.

Eurozone companies have been cutting jobs and high unemployment in turn has held back consumer spending. However, yesterday’s report showed that backlogs of work are growing and stock levels falling, suggesting that manufacturers now have scope to take on more workers.

The survey showed broad-based growth in Germany and Italy, which outperformed France, where manufacturers continued to shed jobs.

Lorenzo Codogno, of Bank of America, said that the eurozone figures would add to the case for a rise in interest rates. “At the European Central Bank, this will be taken as a further, although somewhat blurred, sign that the recovery is becoming solid and broad-based, thereby further strengthening the case for gradual removal of policy accommodation,” he said. “We continue to expect the next (0.25 per cent) hike in March.”

John Butler, of HSBC, said: “Over the past three months the eurozone (PMI) measure has risen by 2 points at a time when the UK measure has dropped by 0.5. That should be treated as negative news for sterling.”

INDEX FALLS

The boost to American manufacturing after Hurricane Katrina wore off in December, the ISM report into the sector showed. The index fell sharply to 54.2 from 58.1 in November, well below forecasts, although still indicating expanding activity

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