- Manufacturing PMI at two-and-a-half-year high
- Output and new orders expand sharply
- Input cost inflation surges higher
- Third quarter growth could easily break 1.0 per cent
UK manufacturing activity expanded at its quickest pace in two and a half years in August, a survey shows.
The index's main gauge hit a consensus-beating two-and-a-half year high of 57.2. Economists' average forecast was for 55.0.
Output and new orders rose more quickly during the month than at any time since the summer of 1994, the Markit/CIPS purchasing managers' survey found.
Domestic orders were the main source of increased activity but exports grew as well. Manufacturers reported increased demand from the US, China, mainland Europe, India, Scandinavia, Brazil and Ireland.
Rob Dobson, an economist at Markit, said: "The UK's factories are booming again. Orders and output are growing at the fastest rates for almost 20 years, as rising demand from domestic customers is being accompanied by a return to growth of our largest trading partner, the Eurozone."
Economic growth could easily break 1% in the third quarter
The survey is the latest in a run of positive news for the UK economy. The official figure for second quarter growth was revised upwards to 0.7% on August 23rd and the British Chambers of Commerce upgraded its forecast for annual GDP growth on August 30th.
Dobson now believes that gross domestic product growth could easily break the 1.0 per cent mark in terms of quarterly rates of change. For their part, over at Capital Economics they explain that today's figures point to manufacturing output accelerating to a 2.0% clip in the third quarter, up from 0.6% in the second quarter.
Increased manufacturing and export activity raises hopes that the economic recovery is broad-based and not too reliant on consumer spending and rising house prices.
Input prices surge
Raw materials costs surged for manufacturers last month with prices rising for commodities, feedstock, oil, paper, polymers and timber. Manufacturers increased average selling prices but not by enough to recoup their extra costs.
The input prices index increased by 10.4 points over the last month, to the 61.4 mark, the second biggest gain in the history of the survey. On this point Barclays Research says that: "There were concerning signs of a pick-up in input costs pressures, but there was little evidence that this was being passed on to output prices yet."
Economists at Capital Economics seemed somewhat more measured in their reaction than others. They admit that the figures are evidence of a healthy bounce-back in manufacturing, but point out that they reflect unsustainably strong growth in domestic household spending. As well, they highlight the fact that the survey's export orders balance has barely risen over the last few months.
As of 10:07 London time UK 10-year Gilt yields were moving higher and at the 2.863% level, a fresh 2-year high, according to data from Tradeweb.