Filomena Scalise

London - Britain's manufacturing sector expanded modestly in January as output grew at the fastest pace since September 2011, offering a small boost to an economy flirting with recession, a survey showed on Friday.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) inched down to 50.8 from a downwardly revised 51.2 in December. That was just short of forecasts for a reading of 51.0 but above the 50 level that separates growth from contraction for a second month running.

A subindex measuring change in output compared to the previous month climbed to 54.2 from 53.4 in December, despite a reported hit from poor weather, while new orders rose for the third consecutive month, also helped by the home market.

In the last quarter of 2012, lower factory output was one reason for a contraction in Britain's economy that brings it within sight of its third recession in four years.

The latest data suggest that factories may yet boost the economy early this year, but with manufacturing only accounting for about 10 percent of the economy, Markit said the impact would be limited.

“The survey will do little to assuage fears of a triple-dip recession unless accompanied by an improvement in the services sector,” said Rob Dobson, the Markit economist who compiled the survey.

Production of consumer goods grew robustly last month and output of intermediate products such as car engines also rose, Markit said. But manufacturing of investment goods such as factory equipment declined.

Employment in manufacturing ticked up, in contrast to the job losses that afflicted the sector for much of 2012.

“A small gain in employment suggests that firms are less focused on cost reduction amid signs of improved order books, which should lead to further production growth in February,” Dobson said.

“Sterling's weakness, plus indications of firmer demand in key export markets such as the euro zone, notably Germany, and emerging markets such as China should also help lift sales in coming months,” he added.

For now, companies said weak demand from continental Europe was behind the 13th consecutive drop in new export orders.

Solid input price inflation continued to eat into manufacturers' profit margins, as the prices they charged rose by a smaller margin. Firms reported higher costs of chemicals, energy, food products, metals, packaging and plastics. - Reuters