UK factory growth cools from fastest pace in 16 months

[LONDON] A UK manufacturing gauge fell more than economists forecast in November, while still signaling solid growth after reaching a 16-month high the previous month.

The Purchasing Managers Index by Markit Economics declined to 52.7 from 55.2, below the 53.6 estimate in a Bloomberg survey of 27 analysts. Readings above 50 indicate expansion.

Publishing its report on Tuesday, Markit gave an upbeat assessment, saying the industry "maintained its positive start" to the fourth quarter. Demand continued to grow and new export orders rose at the fastest pace in more than a year.

The survey, showing improved orders from countries including the US, Germany, China and Japan, may help allay concerns among Bank of England policy makers about the risks to the UK economy from a cooling global environment. BOE Governor Mark Carney said this month that risks from emerging markets remain a threat, though domestic demand is robust.

The survey "maintains hope that the manufacturing sector will finally see some growth in output in the fourth quarter after contraction in each of the first three quarters of 2015," said Howard Archer, an economist at IHS Global Insight in London. While the export outlook for manufacturers still looks problematic, domestic demand should remain strong and factories should be helped by low commodity prices, he said.

"UK manufacturing is moving back into expansion mode, as it starts to reverse the losses sustained in quarter three," said Rob Dobson, an economist at Markit in London. "Although the pace of growth so far is only very modest, it positions manufacturing as less of a drag on the broader economy." The factory report also showed that UK price pressures remain contained. There was a "substantial" decline in average input costs, led by weaker commodity prices. Selling prices fell for a third month and at the fastest rate in six years.

Markit's index of services activity will be published on Thursday. Economists forecast that it rose to 55 in November from 54.9 in October.

BLOOMBERG