Rebound in factory output keeps sector on right track

Manufacturing output increased by a stronger-than-expected 1.2 per cent in September on a month earlier and was up 0.9 per cent between July and September on the previous quarter, the Office for National Statistics (ONS) confirmed.

Economists said September’s rebound would ensure the sector’s recovery remained on track, clawing back a surprise fall the month before, when output dropped 1.2 per cent.

The industrial sector makes up about a sixth of Britain’s economy.

The official figures follow a hat-trick of positive industry surveys in recent days showing growth has continued into October across manufacturing, construction and services sectors.

The wider measure of industrial production, which includes mining, power generation and water, increased by 0.9 per cent on a month earlier, the ONS said.

September’s manufacturing growth was driven by sectors including pharmaceuticals, transport equipment, computers, electronics and optical products.

The pound advanced on the forecast-beating growth, and was up around 0.4 per cent to 1.61 US dollars, and gilts fell as investors took the data as another sign that the Bank of England might bring forward its timeframe for raising interest rates.

David Kern, chief economist at the British Chambers of Commerce, said the manufacturing recovery would “boost confidence” in the sector.

“We remain cautiously optimistic about the sector’s ability to recover despite the tough economic environment at home and abroad,” he said.

But he warned manufacturing “virtually stagnated” between July and September compared with a year earlier, with factory output increasing by 0.1 per cent.

Alan Clarke, at Scotiabank, said the September recovery in industrial output merely reversed August’s drop.

“Taking the two together shows there was nearly zero growth in the last two months,” he said. “There can only be better news to come.”

IHS Global Insight economist Howard Archer said the underlying trend in manufacturing looked “healthy” and should ensure another solid quarter of growth, after Britain’s economy expanded by 0.8 per cent in the third quarter.

He added manufacturing could be volatile over the summer, when holidays affected factory output.

Mr Archer said: “Manufacturers will be hoping that the recent extended good news on the UK economy further lifts business and consumer confidence which in turn translates into sustained higher demand for capital goods and consumer durable goods.”

Samuel Tombs, at Capital Economics, said: “With recent improvements in business confidence suggesting that firms are becoming more willing to invest and no signs yet that the recovery in consumer spending is fading, the near-term outlook for manufacturers looks bright.”

Britain’s economy has staged a surprisingly strong recovery in 2013 after struggling to get over the financial crisis.

But it has depended largely on consumer spending which has been buoyed by a recovery in the housing market.

A survey by mortgage lender Halifax published yesterday showed house prices in the three months to October were 6.9 per cent higher than a year earlier.

The Bank of England meets this week and is not expected to change policy, having said it will keep interest rates at their record low until unemployment falls to 7 per cent.

Economists expect the Bank to bring forward its expectation for when that will happen – currently late 2016 – when it publishes new forecasts next week.

A survey of purchasing managers last week suggested Britain’s manufacturing sector was enjoying its fastest growth in export orders in more than two years but was still expanding more slowly than the construction and services sectors.

Britain’s services sector expanded at its fastest rate since May 1997 last month, further adding to hopes of another big jump in economic growth in the final three months of 2013.

Living standards have yet to benefit however.