British manufacturing output rebounds with fastest growth for 16 months

Kingdom Of Great Britain

British manufacturers enjoyed a recovery in output and new orders last month, according to a survey that will raise hopes the sector is finally shrugging off its recession.

Manufacturers notched up the fastest growth in production for 16 months, according to the latest Markit/Cips UK manufacturing PMI. The report defied economists’ expectations for a fall and instead jumped to 55.5 in October from an upwardly revised 51.8 in September. The consensus forecast in a Reuters poll of economists was for a 51.3 reading – barely above 50, the mark that separates growth from contraction.

The survey follows official data last week showing overall UK economic growth slowed in the third quarter as the manufacturing sector continued to contract. Other reports have pointed to pressures on British factories from sluggish global demand and a relatively strong pound, which makes UK goods more expensive for overseas buyers.

Contrasting with those signals, the PMI report showed export and domestic orders picking up across all parts of the industry. Companies saw improved demand from clients in the Middle East, east Asia and the US, according to the poll of more than 600 purchasing managers. Manufacturing employment rose for the 30th successive month.

Rob Dobson, a senior economist at Markit, the survey compilers, said: “The start of the final quarter saw UK manufacturing spring back into life and record its best month of factory output growth since June 2014. The revival provides a tentative suggestion that the manufacturers are pulling out of their recent funk, having been dogged by recession since the start of the year, and may help boost economic growth in the fourth quarter.

“Based on historical comparisons, the survey is consistent with a quarterly rate of growth of about 1%, a vast improvement on what we have seen in recent months. The big question now is whether this bounceback is a one-off or the start of a sustained re-emergence from recession.”

With headwinds from China’s downturn and wider global struggles, other economists cast doubt on whether the sector can keep up the pace of growth suggested by the PMI report. Other surveys pointed to continued recession, said Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics. “For now, the PMI is a striking outlier,” he said.

“We doubt that exports will see sustained growth, given that they are uncompetitive at the current exchange rate. And domestic demand growth is likely to weaken too as consumers’ real income growth slows as inflation rebounds and job gains slow. So to us, this doesn’t look like the start of a manufacturing resurgence.”

Manufacturing accounts for about 10% of the UK economy, which means forecasters will want to see the PMI report on the bigger UK services sector published on Wednesday to get a clearer idea of whether GDP growth will rebound in the final quarter of 2015.

But signs of a manufacturing recovery could help sway more Bank of England policymakers to vote for an interest rate rise in the coming months, economists said. Only one member of the nine- member monetary policy committee, Ian McCafferty, has voted for an increase in recent months.

Against the backdrop of softer global and domestic growth, no forecasters expect the Bank to raise rates when it meets this week. However, minutes from the meeting could show the committee becoming more divided over when to start increasing it after more than six years of record low rates.

Commenting on the stronger PMI report, James Knightley from ING Capital Markets said: “This bodes well for output and employment in the sector and suggests that fourth quarter GDP growth should improve ... It also backs up recent positive comments from Bank of England officials and suggests at the very least one further MPC member – most likely Martin Weale – will join Ian McCafferty in voting for an interest rate rise on Thursday.”

Powered by article was written by Katie Allen, for on Monday 2nd November 2015 11.34 Europe/ © Guardian News and Media Limited 2010


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