UK manufacturing PMI rises to 16-yr high in November

 
City A.M. Reporter
UK MANUFACTURING activity accelerated unexpectedly to a 16-year high in November and employment climbed at a record pace, a survey released today shows.

The Markit/CIPS headline manufacturing Purchasing Managers' Index (PMI) rose to 58.0 in November, its highest since September 1994, and well above October's upwardly revised figure of 55.4.

Economists had forecast a modest easing to 54.6.

The index has been above the 50.0 mark, which separates growth from contraction, for 16 months in row, pointing to a robust recovery in the industrial sector.

The survey is likely to come as welcome news to the government which is relying on the private sector to help sustain Britain's economic recovery at a time of deep public spending cuts.

"Stronger manufacturing expansion may well be needed to offset a likely slowdown in consumer spending as austerity measures start to bite," said Rob Dobson, senior economist at Markit.

With public sector cuts and a VAT rise expected to erode demand in 2011, most economists expect economic growth to weaken into 2011 after a strong performance in the middle of this year.

While the PMI figures suggest the manufacturing sector – which accounts for around 13 per cent of economic output – is holding up well, economists have warned that upbeat activity surveys have not been reflected in official data.

Wednesday's data is therefore unlikely to alter the view that the Bank of England will leave interest rates on hold for many months to come until the recovery is assured.

The survey showed manufacturers took on staff at their fastest rate since the survey began in 1992, with an index reading of 57.6 compared with 55.4 in October. Markit said the pick-up was broad-based.

The government's debt-cutting plans are expected to result in the loss of around 330,000 public sector jobs, less than previously thought.

Higher domestic and overseas demand helped push the manufacturing output index to its highest level since May, while backlogs of work increased for the first time in five months.

New orders rose at their fastest pace since April, while export orders grew at their fastest in seven months, with companies reporting increased sales to the United States, China, Germany, India and the Middle East.

However, rising prices for commodities, electronics, oils and packaging contributed to a big jump in cost pressures.

The input prices index rose to its highest since August 2008. But firms did not appear to be passing on those costs to customers and the output prices index fell to an eight-month low.

That may give Bank of England policymakers some leeway, as they try to balance high inflation while keeping the recovery on track.

The central bank has held interest rates at a record low of 0.5 per cent since March 2009 and has injected £200bn into the economy to boost growth.