03 July 2006 | Rebecca Ellinor

The UK manufacturing sector had its strongest monthly performance for almost two years in June, the latest purchasing managers' index (PMI) has revealed.

The CIPS/RBS PMI, a composite indicator of sector conditions in which an index above 50 means growth - rose to 55.1, up on May's reading of 53.5, and its highest since July 2004. New business growth and increased output in the UK manufacturing economy led to a slight increase in employment for only the second time in the past 15 months. The employment index posted 50.8, with increased staffing levels attributed to rising workloads.

Although firms faced mounting cost pressures, this was partly offset by an improvement in their pricing power. June data pointed to the sharpest rate of increase in average purchase prices for almost 18 months. This was linked to rising metals prices, especially for aluminium and steel. The costs of chemicals, energy, paper, plastics and timber were also higher than in May. Some of these rises were passed on to clients in the form of higher charges.

New orders rose at their strongest pace in almost two years with more demand from both domestic and export clients. Companies reported benefits from stronger economic conditions in the eurozone, which led to growth of new orders from Germany, France, Italy and Spain. The new orders index posted a reading of 57.7.

Coverage of previous months' PMI reports is available at www.supplymanagement.com/pmi

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