Manufacturing surveys show mixed outlook for UK and eurozone

Chancellor of the exchequer George Osborne peaks with with works manager Richard O'Neil (R) during a visit to Tata Steel in Port Talbot, Wales. Photograph: Matthew Horwood/AFP/Getty Images

There are renewed hopes that the eurozone economy picked up steam as it entered 2014 after a return to growth for France's manufacturers and a surge in activity at Spanish and Italian factories.

The news from a batch of closely watched manufacturing surveys by data specialists Markit was less upbeat for the UK, however, with growth there slowing to an eight-month low and missing forecasts in the City.

For the eurozone as a whole there was a slight loss of momentum for manufacturing last month. The headline measure on the Markit Eurozone Manufacturing PMI eased to a three-month low of 53.0 from 53.2 in February, confirming an earlier "flash" estimate in a shorter release. But over the first quarter of the year, growth was the fastest for almost three years.

"This suggests that eurozone GDP growth in the first quarter has a very decent chance of exceeding the 0.3% quarter-on-quarter rate achieved in the in the fourth quarter of 2013," said Howard Archer, economist at IHS Global Insight.

Within the region there was mixed news at country level. French manufacturing activity expanded for the first time since July 2011 with the activity reading at 52.1 from 49.7 in February. A level above 50 denotes expansion in the surveys, which are based on interviews with purchasing managers.

In Spain, manufacturers enjoyed the strongest growth for four years and in Ireland activity accelerated to a 35-month high. But there were slowdowns in Germany, the Netherlands and Austria.

The report also fanned fears over deflation in the eurozone, as the prices of raw materials and finished goods dropped.

In the UK, the pound fell against the dollar as the PMI report came in much weaker than expected and showed manufacturers' costs falling. Inflation for the goods leaving factories – or output prices – eased to a seven-month low. That news of benign pipeline pressures on consumer price inflation in the UK bolstered expectations the Bank of England will be in no hurry to raise interest rates.

The headline reading on the UK report came in at 55.3, down from 56.2 in February. That still showed expansion but was below even the weakest forecast from a Reuters poll of economists, where the consensus was 56.7.

Rob Dobson, senior economist at the survey compilers Markit, said the headline reading should be taken in the context of the "super- strong, near-record growth rates seen in the second half of last year".

"Growth is merely hot rather than scorching, and the take home messages from the March survey are that the recovery remains solid and continues to drive strong job creation," he said.

The survey signalled manufacturing employment rose for the 11th consecutive month in March but export orders grew at the slowest pace for 10 months.

The thinktank Capital Economics, said that slowdown suggested UK exporters may finally be feeling the effects of the strong pound. But overall the sector would enjoy "healthy" growth of around 3% this year, it predicts.

"With consumers' real incomes set to increase this year, and firms signalling they intend to invest more, demand for manufactured products should build over the course of the year," said the thinktank's economists Paul Hollingsworth and Samuel Tombs.