Growth hopes raised after surge in factory activity

Economic growth is predicted to accelerate in the third quarter after new figures showed the UK’s manufacturing sector expanding at its fastest rate in more than two years.

The rise in factory activity will also take the pressure off Bank of England governor Mark Carney to embark on another round of fiscal stimulus. The monetary policy committee yesterday voted against an extension to its £375 billion bond-buying programme and held interest rates at a record low of 0.5 per cent.

The European Central Bank also left rates at 0.5 per cent yesterday. President Mario Draghi said he expects them “to remain at present or lower levels for an extended period”.

Attention will now focus on the publication of the Bank of England’s inflation report on Wednesday, when it will announce whether it is adopting a policy of “forward guidance” on interest rates. Howard Archer, chief UK and European economist at IHS Global Insight, said: “The improved news on the UK economy could be seen as highlighting the need for the Bank to make it absolutely clear that interest rates are not going up for some considerable time to come.”

The latest purchasing managers’ index, compiled by Markit and the Chartered Institute of Purchasing & Supply, jumped to 54.6 last month, from June’s upwardly-revised 52.9, as firms benefited from contract wins and improving overseas demand.

The reading was the strongest since February 2011 and marked the fourth straight month of expansion for the sector.

Archer said: “This supports hopes that the UK economy is on course for further appreciable expansion in the third quarter, after GDP growth doubled to 0.6 per cent in the second quarter, from 0.3 per cent in the first.”