NEW Bank of England governor, Mark Carney, received a boost ahead of today’s key inflation report, when robust industrial output data provided the latest shot in the arm for Britain’s nascent recovery.
Carney is expected to unveil his new guidance for setting interest rates as official figures show that industrial output climbed 1.1 per cent in June from the previous month. This was its quickest pace in more than two years, the Office for National Statistics (ONS) said, and nearly double consensus City forecasts of a 0.6 per cent rise.
The narrower category of manufacturing rose 1.9 per cent in monthly terms and 2 per cent on the year, much higher than forecasts, and all of the sector’s components grew for the first time since June 1992.
It came the day after data showing the dominant services sector – about 75 per cent of the economy – expanded at its fastest in more than six years in July.
“The industrial output figures, most particularly manufacturing, coming after a lot of other good news, really does suggest the recovery is becoming wider and firmly entrenched,” said Howard Archer, chief UK economist at IHS Global Insight.
“Industrial output, with areas like mining and energy, can be erratic, but I was surprised manufacturing was as strong as it was. We also saw some decent car sales figures as well. We are seeing a steady stream of strong economic numbers and it is very encouraging.”
The Society of Motor Manufacturers revealed yesterday that car sales rose 12.7 per cent year on year in July. This followed a rise of 13.4 per cent in June and marked the 17th consecutive month of year-on-year gains, further contributing to the improving UK economic performance. Other sectors to make headway in recent months have included retailing, housebuilding and construction.
Tempering the optimism, City economists said the British economy still faced challenges, including a continuing squeeze on consumers’ spending power, with inflation running at around 3 per cent and earnings growth around 1 per cent.
Another headwind is seen as the government’s continuing squeeze on public spending to bring down the national deficit. But the raft of positive data across the piece has persuaded many that optimism is more justified than at any time over the past few years. David Kern, chief economist at the British Chambers of Commerce, said the industrial production and manufacturing figures were “positive news for the economy”.
He added: “There has certainly been an important change for the better in the second quarter of the year, and although it might be premature to assume the 0.6 per cent GDP estimate [for this year] will be revised upwards, this likelihood will increase if construction and services also continue to improve.”
Archer at IHS said the strength of the latest data from manufacturing, accounting for about 12 per cent of the economy, meant he may raise his growth forecast for 2014 from 1.8 per cent to 2 per cent.
Carney, formerly head of the Canadian central bank, who succeeded Lord King last month, will today attempt to convince householders, businesses and financial markets that interest rates will only rise when the gathering upturn is firmly established.
He is known to be a fan of giving “forward guidance” of monetary policy intentions to give consumers and businesses the confidence to spend and invest respectively.
Interest rates have been at historic lows of 0.5 per cent since March 2009 as Mervyn King at the BoE sought to prevent a recession developing into a depression.
After yesterday’s latest positive data, on the currency markets the pound rose 0.1 percent to $1.536, having hit a session high of $1.539.