UK manufacturers cranked up production in October to meet growing domestic demand but export orders fell again as problems in the eurozone continued.
The closely watched Markit/CIPS UK Manufacturing PMI survey came in stronger than expected, with the main activity index bouncing back to a three-month high in October. The index stood at 53.2, recovering from September’s 17-month low of 51.5 and beating the consensus forecast for 51.2 in a Reuters poll of economists. That contrasted with a reading of 50.6 for the eurozone manufacturing sector, only just above the 50-mark that separates growth from contraction.
The UK report showed manufacturing production rising for the 19th month in a row, with strong increases in the consumer and intermediate goods sectors, and a “solid gain” for capital goods manufacturers, the survey compilers said.
Demand from domestic-based clients helped new business grow at the fastest pace for three months. But export orders fell for the second month in a row, the survey showed, chiming with other recent reports of pressure on manufacturers from a flagging eurozone, the UK’s main export market.
“Exporters were hit by a near-stagnant eurozone economy and a relatively strong euro-sterling exchange rate,” said Rob Dobson, senior economist at survey compilers Markit. “Reports from companies mentioning slower inflows of new business from markets such as the US and China also paint a less than rosy picture for exports moving forward.”
Overall, the report showed a bright start for UK manufacturers for the final quarter of 2014, he said. Employment in the sector continued to rise in October while price pressures remained “relatively subdued” with input costs down for the second month running.
“Although the pace of expansion remains below that seen at the start of the year, suggesting the sector will remain only a modest contributor to broader economic growth, it is positive to see the sector break its recent sequence of slower growth,” Dobson added.
Rob Wood, chief UK economist at the bank Berenberg, said the survey still pointed to a “temporary and minor slowdown” in UK growth in the fourth quarter of this year and first quarter of 2015.
He added: “The risk to the UK from the eurozone is not the direct impact of weak exports, which Britain could easily ride out, but rather the potential for uncertainty to infect UK domestic demand as companies perhaps put off investments. The manufacturing PMI jump this month suggests those risks are not yet materialising.”
The UK survey follows PMI reports for the eurozone on Monday that showed manufacturers there”remained in a state of near stagnation”.
Growth in Germany and Spain was wiped out by Italy’s disappointing return to contraction, and the ongoing weakness in France. “Manufacturing is … unlikely to provide any meaningful boost to the currency union’s anaemic GDP growth,” said Dobson.