Booming orders help UK factories to best month since 2013: PMI

[LONDON] British factories enjoyed their best month in more than four years in November, suggesting manufacturing will give a boost to the country's sluggish economy going into 2018, a survey showed on Friday.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers' Index jumped to 58.2 from an upwardly revised 56.6 in October, hitting its highest level since August 2013 and topping all forecasts in a Reuters poll of economists.

The survey was bolstered by surging orders at home and from Europe's recovering economy.

Overall it added to signs that manufacturing could be a bright spot next year, when the slowdown in the overall economy is likely to deepen as Britain approaches its departure from the EU in March 2019.

Higher inflation - largely due to the fall in the pound after the Brexit vote last year - has pushed up costs for households and businesses this year, contributing to Britain's lagging economic performance compared with European peers.

The latest survey also showed busy manufacturers were increasingly facing cost pressures caused by supply chain bottlenecks.

However, the weaker pound has helped many manufacturers to compete in export markets.

"On its current course, manufacturing production is rising at a quarterly rate approaching 2 per cent, providing a real boost to the pace of broader economic expansion," Rob Dobson, director at survey compiler IHS Markit, said.

While Friday's PMI will make welcome reading for policymakers, Britain's economy relies far more on the services sector, which is nearly eight times larger than manufacturing.

A PMI survey of the services sector is due to be published on Tuesday.

The European Commission's gauge of British factory orders hit a 29-year high last month - but this was not enough to prevent a drop in wider economic sentiment caused by a slowdown among services firms.

Last week, Britain's official budget forecasters slashed their forecasts for economic growth in the coming years as they turned more pessimistic about the outlook for productivity, the Achilles heel of Britain's economy.

Official figures on British manufacturing, which painted a gloomier view than the PMI surveys for much of this year, have also now started to show improvement.

Friday's PMI showed new factory orders piled in at the fastest pace in four years, causing backlogs of work to build at the quickest rate since early 2011.

Producers of capital goods such as machinery had a strong month, a good omen for Bank of England officials who think business investment will accelerate next year.

Growth in new export orders also recovered after slowing for four months, while factories hired staff at the fastest pace since June 2014.

But price pressures represented a downside in the latest PMI.

"Manufacturers have seen supply-chain constraints and rising demand for raw materials overtake exchange rate effects as the primary motivator of price increases," Mr Dobson said.

REUTERS