04 January 2006 | Anusha Bradley

Manufacturing activity grew in December but remained weak, according to the latest CIPS/RBS purchasing managers' index (PMI).

The December PMI - a composite indicator of sector conditions in which an index above 50 means growth - was 51.1, little change on November's figure of 51.

The overall PMI for 2005 registered an average reading of 50.5.

Employment fell sharply as manufacturers' margins were squeezed as a result of high energy, plastic and metal prices driving up purchasing costs. In particular, the costs of packaging components such as paper, cardboard and foam were reported to have increased substantially. The seasonally adjusted input prices index recorded a figure of 61.9, signalling the fastest rate of inflation in average purchase prices since March.

Job losses were reported for the ninth consecutive month as companies linked lower employment and redundancies to cost-control programmes. But improved production efficiency and staff productivity also contributed to the decline in workforce levels.

An increase in new export business slowed to a marginal pace. Where rises were recorded, they were linked to improved demand from continental Europe, the Far East and the US.

Roy Ayliffe, director of professional practice at CIPS, said: "Purchasing managers saw 2005 close with another poor performance from the UK's manufacturing sector. Overall the year ended on a disappointing note for manufacturers with the rise in input costs remaining well above the rise in output prices."

Meanwhile, the Eurozone manufacturing PMI hit a 16-month high in December at 53.6 and employment also rose for the first time in more than four years.

In the US, the Institute of Supply Management recorded a manufacturing PMI of 54.2 for December with activity in the sector growing for the 31st consecutive month.

SMjan2006