Belfast Telegraph

Tuesday 16 September 2014

Factory growth lower than expected

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Growth in Britain's factories has eased back from a two-and-a-half-year peak but remained on track to help the economy expand further between July and September.

The CIPS/Markit manufacturing purchasing managers' index (PMI) survey recorded a level of 56.7 in September, well above the 50 mark which separates growth from contraction.

While down on August's recent peak of 57.1 and below City expectations for a 57.3 reading, economists said manufacturing has contributed to "strong" third-quarter growth.

Employment surged at its fastest level for more than two years, while production and new order growth remained near their August levels.

But exports grew at the weakest pace since May, with economists at consultancy Capital Economics raising fresh concerns about the "balance and sustainability" of the recovery.

They said: "The survey still points to a sector recovering at a rapid clip.

"A revival in the manufacturing sector that was particularly battered by the recession looks to be more and more entrenched.

"Notwithstanding some obstacles, with plenty of potential catch-up growth on offer, manufacturing looks set to make an important contribution to the overall economic recovery."

Last month's growth hiccup broke a six-month streak of consistently-improving manufacturing output.

But economists said factories are on course to contribute to overall growth of about 1% in the third quarter, which would be an acceleration from 0.7% in the second quarter.

Rob Dobson, senior economist at Markit, said manufacturing continues to "boom" and the figures add to evidence which suggests the economy is growing "faster than almost anyone expected".

He said manufacturing could have expanded by as much as 1.5% between July and September.

Factories added new workers at their fastest pace since May 2011, as they stepped up hiring to tackle backlogs of work.

But the export reading slipped to 52.7, the lowest level since May, although companies reported higher demand from the US, Europe, Asia, the Middle East, Scandinavia, Latin America, Russia and Australia.

Both input and output prices continued to rise in September, with manufacturers reporting inflation among commodities, dairy goods, energy, oil, paper and plastic.

Factory gate prices rose at the fastest pace since September 2011, as firms hiked prices to recover raw material inflation.

And average supplier delivery times continued to lengthen, while stock levels fell, which economists said suggests more inflation could be around the corner.

The Bank of England has pledged not to raise interest rates from their record 0.5% low until unemployment drops to 7% from 7.7% - barring a spike in inflation - to give companies and businesses confidence to spend.

The Bank forecasts it could take around three years for the jobless level to drop to 7%, meaning rates will not rise until mid-2016.

James Knightley, economist at ING Bank, said: "W ith both the employment and inflation components pointing to the upside it will reinforce market expectations of monetary policy tightening coming in early 2015."

Today's closely-watched manufacturing PMI survey will be followed by a construction survey tomorrow and data from the dominant services sector on Thursday.

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