Britain’s factories enjoyed better-than-expected growth last month, cementing expectations that the Bank of England will deliver the first interest rate hike in a decade.
Closely-watched figures from the IHS Markit/CIPS manufacturing purchasing managers’ index (PMI) showed the sector enjoyed a brisk start to the fourth quarter.
Firms also saw rising price pressures – further adding to the ammunition for hawks on the Bank’s rate-setting Monetary Policy Committee (MPC) as they seek to keep a lid on inflation.
The PMI reading – where the 50 mark separates growth from contraction – rose to 56.3 in October, up from 56.0 in September.
Sterling ticked slightly higher on the figures but appeared to have been held back from further gains by traders waiting to see the outcome of Thursday’s MPC decision.
The report said manufacturers benefited from strong conditions in the UK market as well as export growth, partly helped by the weakness of sterling – which is still more than 10% lower than before the Brexit vote and has made UK goods cheaper for overseas customers.
The latest figures suggested the sector was continuing to expand at a “solid” quarterly pace of nearly 1%.
Rob Dobson, director at IHS Markit, said: “UK manufacturing made an impressive start to the final quarter of 2017 as increased inflows of new work encouraged firms to ramp up production once again.
“The continued robust health of manufacturing and rising price pressures will help cement expectations of the Bank of England hiking interest rates.”
But James Smith, economist at ING Bank, said the overall post-referendum increase in output was still lower than what might have been expected given the boost to exports from the weak pound.
Meanwhile, the dominant services sector continued to struggle, consumers were being squeezed by inflation and Brexit uncertainty was weighing on investment, he added.
Mr Smith said that while none of that was likely to stop a rate hike, the uncertain outlook meant it looked unlikely that this would “evolve into a meaningful tightening cycle” of a series of rate rises.
Source: Sky News