A good first day for Mark Carney as UK manufacturing output hits 25-month high

New Bank of England governor Mark Carney was handed a first-day gift today as the steepest surge in manufacturing activity for more than two years fuelled hopes over growth.

Manufacturing output surged to a 25-month high of 52.5 in June, above the 50 mark which separates growth from contraction, the Markit/CIPS purchasing managers' index (PMI) showed.

That was solidly above economists' expectations for a minor gain on May's reading, and will ease pressure on Mr Carney to pump more stimulus into the economy. May's 51.3 reading was also revised higher to 51.5.

It was the third consecutive month of gains from a sector that has proved a drag on growth through the downturn, boosting hopes that Britain's factories are recovering.

Production rose at its fastest rate since April 2011 and new business hit highs last seen in February 2011. Domestic market conditions and overseas demand both strengthened.

Markit said every sector of manufacturing reported gains in June, with the strongest growth in textiles and clothing and food and drink. However, employment was broadly unchanged in June as companies paused on hiring new staff.

Rob Dobson, senior economist at Markit, said manufacturing has made “positive strides on the recovery path” and suggests the sector expanded by 0.5% in the second quarter.

He said: “Taken with recent signs of service sector strength and a stabilising construction industry it paints a picture of UK economic growth picking up from the opening quarter's 0.3% to at least 0.5%.

“It therefore seems increasingly unlikely that the Bank of England's policymakers will opt for further asset purchases at its meeting later this week.”

Manufacturers reported solid demand from Europe, China, North America, Scandinavia and the Middle East.

Firms attributed surging new work to improved confidence among clients, better weather and new product launches.

Costs declined for the third straight month in June, reflecting falls in the price of chemicals, feedstock, metals, packaging and plastics. Firms passed these on in lower prices of goods - the first fall in factory gate prices for three and a half years.

Manufacturers also spent more on bolstering their stocks of goods and levels of finished goods fell for the 15th successive month.

David Noble, chief executive of the Chartered Institute of Purchasing & Supply (CIPS), said: “Momentum is building in manufacturing as the sector begins to work up a head of steam.

“Employment is the one disappointing spot, showing little change from last month; a reminder of the anxiety that still exists in the sector.”

The Bank of England's Monetary Policy Committee (MPC) meets on Wednesday and Thursday to decide on interest rates and whether to increase the £375 billion quantitative easing programme.

James Knightley, economist at ING Bank, said the data should ensure this week's MPC meeting is a “non-event”.

“It looks as though the private sector is on a strengthening trend and the UK can post respectable GDP growth,” he added.

“It also makes the prospect of any extra stimulus in coming months look less and less likely.”

Samuel Tombs, UK economist at Capital Economics, said: “For now, then, it seems as if the UK's recovery is gathering some steam.”

PA