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UK manufacturing gathers pace amid signs of broader recovery
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British manufacturing accelerated again in August and new orders and output rose at their fastest pace in nearly 20 years, boosting hopes that the country’s recovery is broadening, a survey showed yesterday.
The Markit/CIPS Manufacturing Purchasing Managers’ Index jumped to 57.2 last month from 54.8 in July, its fifth straight month of expansion.
The reading was the strongest since February 2011 and beat by a wide margin even the most optimistic forecast in a poll of economists.
The survey made for mixed reading for the Bank of England Governor, Mark Carney, whose cautious outlook for Britain’s economy is being tested by financial markets.
Employment growth in British factories slowed slightly in August as companies squeezed more from staff.
That will be welcome news for Carney. The BoE said last month it would keep interest rates at their record low until unemployment falls to 7 percent, something the bank only expects in late 2016. Many investors expect joblessness to fall faster.
But there were signs of inflation pressure as rising raw material costs — pushed up by a spike in oil in August — pushed up prices paid by manufacturers. Input prices rose at the fastest rate for two years. Prices charged by factories rose much less quickly.
The BoE has said it may raise interest rates depending on inflation expectations.
The central bank holds its September policy meeting this week and is likely to welcome signs that Britain’s economic recovery is broadening out from an earlier reliance on credit-driven consumption and housing.
“The UK’s factories are booming again,” said Rob Dobson, senior economist at Markit.
He said the survey suggested British gross domestic product could easily grow more than 1 percent between July and September, picking up speed from 0.7 percent in the year’s second quarter.
August’s expansion in Britain’s manufacturing sector was driven by the fastest rise in both new orders and output since 1994, Markit said.
The subindex for new orders leapt to 61.8 in August from 58.6 in July, boosted mostly by domestic demand. Growth in export orders hit its highest level in more than two years.
Manufacturing accounts for about one-tenth of British GDP.
A separate survey published earlier yesterday showed British manufacturers were planning the fastest increase in capital investment in the year ahead since before the financial crisis, also suggesting the economy could be heading for a more balanced recovery.
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