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UK manufacturing PMI rises

Improvement in domestic market and overseas demand.

The seasonally adjusted UK Purchasing Managers Index (PMI), which measures manufacturing activities in the country, rose to a two-year high of 52.5 in June compared to 51.5 in May, primarily due to rise in new business, according to data collected from 600 industrial firms between 12 and 25 June 2013 by research firm Markit and the Chartered Institute of Purchasing & Supply (CIPS).

A PMI of above 50 implies that the sector is experiencing growth, and below hints at contraction.

During the month, domestic market conditions and demand from overseas improved further.

Demand from domestic markets and clients based in Europe, China, North America, Scandinavia and the Middle East grew during the month. Incoming new orders rose for the fourth consecutive month in June, while manufacturing employment remained unchanged.

Price pressures remained subdued during the survey period. Input costs declined for the third straight month in June due to fall in costs for chemicals, feedstock, metals, packaging and plastics.

During the month, average factory gate prices declined primarily due to strong competition, while finished goods stocks declined as companies used their existing inventory to satisfy the dual requirements of new and existing contracts.

Rob Dobson, senior economist at Markit, said: "The UK manufacturing sector made positive strides on the recovery path during the second quarter of the year. June saw output and new order growth hit rates not seen since early-2011, as a brightening domestic market and resilient overseas demand led to a broad-based expansion across the sector.

"The near-term outlook for output also remains on the upside, as above-trend sales growth depleted inventories that manufacturers will need to rebuild later in the year. Job creation is still weaker than hoped for, but this should improve if solid demand growth is sustained and eats into spare capacity.

"The survey suggests that manufacturing output rose by around 0.5 per cent over the second quarter. Taken with recent signs of service sector strength and a stabilising construction industry it paints a picture of UK economic growth picking up from the opening quarter’s 0.3 per cent to at least 0.5 per cent. It therefore seems increasingly unlikely that the Bank of England’s policymakers will opt for further asset purchases at its meeting later this week."

David Noble, CEO of CIPS, said: "Momentum is building in manufacturing as the sector begins to work up a head of steam. The industry experienced another good month to round off a solid Q2. The two-year high in new business growth will do much to reassure firms we are on track for a recovery. Both domestic and export orders played their part, with consumer goods showing particular signs of traction.

"Employment is the one disappointing spot, showing little change from last month; a reminder of the anxiety that still exists in the sector. The swell in order books and increased levels of purchasing activity however, signal that the subdued labour market trend may be shortlived.

"Firms will also take heart from the drop in input costs, which has enabled them to reduce their own prices for the first time in over three years. This has eased the pressure on margins and enabled manufacturers to stay competitive. Long may it continue.2

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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.