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Financial News: UK Manufacturing Sector Growth Accelerates In October

UK Manufacturing Sector Growth Accelerates In October

11/01/2017 - 07:38:00 (RTTNews)

(RTTNews) - The British manufacturing sector started the final quarter of the year on a solid footing in October, driven by robust production and new orders.

The Purchasing Managers' Index rose to 56.3 in October from a revised 56.0 in September, survey data from IHS Markit and the Chartered Institute of Procurement & Supply showed Wednesday.

The PMI was forecast to remain unchanged at September's original reading of 55.9. The headline index has now signaled expansion for 15 consecutive months.

"The sector looks to be achieving a quarterly rate of expansion close to 1 percent, therefore sustaining the solid pace of growth signaled by the official ONS estimate for the third quarter," Rob Dobson, director at IHS Markit, said.

According to the ONS, the economy expanded at a faster pace of 0.4 percent in the third quarter after rising 0.3 percent in the previous three months.

James Smith, an ING economist said manufacturing only makes up a relatively small part of the UK economy.

The much larger service sector is still struggling to find momentum. With inflation still outpacing wage growth, consumers are continuing to take a cautious approach to discretionary spending, the economist noted.

The PMI survey data showed that production increased at an identically solid pace to that posted in the prior survey month. The expansion was broad-based with all consumer, intermediate and investment goods producers reporting output growth.

Further, new order intakes expanded at a substantial rate in October, recovering part of the growth momentum ceded in September. The domestic market was the prime source of new contract wins. New export business also continued to increase.

Driven by solid performance, the labor market reported job creation for the fifteenth successive month, with the pace of growth improving to a 40-month high.

Strong demand for raw materials led to higher purchase prices. Input costs increased to the greatest extent in seven months, contributing to the steepest rise in selling prices since April.

Elsewhere, monthly data from the Nationwide Building Society showed that house prices increased at a faster pace in October. House prices increased 2.5 percent year-on-year, following September's revised 2.3 percent rise.

On a monthly basis, house price inflation halved to 0.2 percent from 0.4 percent in September. Nonetheless, this was the second consecutive rise in prices.

Low mortgage rates and healthy rates of employment growth are providing some support for demand, but this is being partly offset by pressure on household incomes, which appears to be weighing on confidence, Robert Gardner, Nationwide's chief economist, said.

The lack of homes on the market is providing support to house prices.

Gardner said the proportion of borrowers directly impacted by a rate hike will be smaller than in the past, because the majority of mortgages were extended on fixed interest rates.

The Bank of England is widely expected to raise its interest rate by a quarter point from a record low 0.25 percent and to maintain its asset purchase programme at GBP 435 billion. The announcement is due on November 2.

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