Surging factory output bolsters recovery hopes

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Britain’s factories are running at full steam to meet the strongest rise in new orders in nearly 20 years, fuelling hopes of a sustainable economic recovery.

According to the latest purchasing managers’ index for the manufacturing sector, orders increased at their strongest pace since August 1994 last month, while output rose at the fastest rate since July 1994.

Yesterday’s report by the Chartered Institute of Purchasing & Supply (Cips) and data analyst Markit follows upbeat soundings from employers’ organisations the EEF and Scottish Engineering.

The main activity barometer jumped to 57.2 last month from 54.8 in July, marking its fifth straight month of expansion. The 50 level separates growth from contraction.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “This is a hugely encouraging survey, which extends the recent stream of good news on the UK economy.”

A resurgent manufacturing sector is especially welcome amid concerns that the economy needs to be re-balanced towards traditional industry.

But the accelerating growth has added to speculation that interest rates may have to be raised from their historic low of 0.5 per cent sooner than 2016 – the figure suggested by the Bank of England’s forward guidance policy.

Rob Wood, chief UK economist at Berenberg Bank, said: “Domestic momentum is getting stronger which may be worrying some BoE policymakers given [governor] Mark Carney’s super-dovish rhetoric.”