This week’s figures from financial information services firm Markit revealed a surprise 16-month peak in output from UK factories. Growth also accelerated in the services industry, a month after its worst decline in over two years. However, concerns remain that the improvement could be a one-off rather than a sign of full recovery.
Big players providing boostCatherine Neilan of
City AM points out that the acceleration in manufacturing output growth is especially steep. She adds that strong domestic demand and improved export sales are both to thank for fuller order books. But there are worries that the boost may be coming from a few larger players rather than representing the industry as a whole.
Neilan quotes Rob Dobson, Senior Economist at Markit, who said: “The ongoing strength of the domestic market and a welcome improvement in new export orders led to a broad-based upturn in production of consumer, intermediate and investment goods. The revival of overseas sales is a particularly encouraging aspect of the latest survey, helping to dispel fears that global demand is slumping and boding well for the outlook.”
But Dobson thinks that the revival may not be universal: “Scratching further beneath the surface of the data reveals that the upturn is largely confined to the biggest manufacturers, who also benefited most from the better export sales. Small and medium-sized firms will also need to join in the recovery to help prevent the upswing from faltering.”
City AM comment
Solitary or steady improvement?Meanwhile,
ThisIsMoney.co.uk’s Jonathan Hopkins reports that the encouraging figures have triggered a ten-week high for the pound against the euro. He quotes Joshua Mahoney, who works in market analysis at trading firm IG. Mahoney thinks that the Bank of England will take the results as “yet another nod to Mark Carney that the UK economy is booming, despite a weaker-than-expected third-quarter GDP figure last week.
“Improved business in both the domestic and export sectors shows brand UK is well and truly booming once more.”
Some did not share Mahoney’s optimism, believing the improvement may be a one-off rather than a sign of things to come. Barclays’ Head of Manufacturing, Mike Rigby, is quoted as saying: “Though much-needed, after three consecutive quarters of falling output, many will find October's rebound in manufacturing numbers a tad surprising and will eagerly await November's figures to see how sustainable the bounceback is.”
ThisIsMoney.co.uk article
Possible interest rate rises Finally, Fergal O’Brien of
Bloomberg reports a possible rise in interest rates on the back of the output boost. He adds that Markit’s activity index rose by 0.4 from the previous month, beating the median forecast of economists for a reading of 54.5.
The fact that the level of optimism towards the 12-month outlook for activity has dropped to its lowest for two and a half years raises doubts over the sector’s ability to sustain such strong growth.
Despite these concerns, some claimed the figures could be strong enough to have farther-reaching effects. O’Brien cites Chris Williamson, Chief Economist at Markit, who said that the headline improvement “may coax more policymakers into raising interest rates before the end of the year.
“Dovish policymakers will note, however, the ongoing lack of inflationary pressures in October, suggesting that there is no need to rush.”
Bloomberg report
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