Business

Manufacturing output rate 'rises'

Steel ready for use in manufacturing
Image caption The Bank of England will welcome the further rise in manufacturing output, but not inflation concerns

The rate of growth in UK manufacturing output rose in October for the first time since March, a closely-watched survey has found.

The Chartered Institute of Purchasing and Supply (CIPS) said its Purchasing Managers' Index rose to 54.9 from September's 10-month low of 53.5.

With a figure of 50 or above indicating growth, it is a sign of renewed strength in the manufacturing sector.

Yet, CIPS said firms also seemed concerned about future inflation.

Price concerns

It found that manufacturers had increased their stock levels for the first time since November 2007, and at the fastest pace in the survey's 18-year history.

The report said that while firms were also doing this to guard against raw material shortages, supplier delivery delays, concern about "expected future price increases" was a key factor.

The CIPS report will give the Bank of England's Monetary Policy Committee (MPC) much to think about when it meets on Wednesday and Thursday.

There had been some signs that the MPC was moving towards another round of quantitative easing (QE) - putting more fresh money into the economy - to boost economic growth.

The CIPS report of a rise in the rate of manufacturing growth, may mean the MPC holds off such a decision.

As most likely will CIPS warning of fears about higher inflation, as QE can have any inflationary reaction.

Economist Philip Shaw, of Investec, said the latest CIPS data would not be a "game-breaker" for the Bank.

He added: "But... it's likely to add to sentiment that the committee shouldn't do anything for the time being."

The the Ernst & Young Item Club was more forthright, saying the strong CIPS data was "the final nail in the coffin" for any chances of QE this week.

Andrew Goodwin, senior economic advisor to the Ernst & Young Item Club, said: "It is clear that the recovery still has reasonable momentum behind it, and at this stage there is no compelling case for the MPC to implement any further stimulus."

At the MPC's September meeting, one of its nine members called for more QE, while another said interest rates needed to rise from the current 0.5% to calm inflation.

The most recent official inflation figures showed that Consumer Prices Index inflation was unchanged at 3.1% in August, above the government's 2% target.

Small manufacturing boost

A separate manufacturing study has also said the sector is in good health.

The CBI business organisation said a growing number of small manufacturers were now expecting to increase production to meet rising demand.

Its latest SME Trends Survey found that 31% of such firms expect to boost output in November-January, while only 12% are predicting a fall.

This gives a balance of +19%, better that the +9% figure recorded for the past three months.

However, the majority of small manufacturers see no change in output.

Russel Griggs, chairman of the CBI's SME council, said: "Smaller manufacturers saw the pace of output growth slow slightly in the last three months after the fillip from stock rebuilding dwindled.

"But manufacturers expect a faster rise in production in the coming three months as demand at home strengthens.

"It is encouraging that firms have increased their headcount this quarter and are now planning to invest in plant and machinery, and innovation."

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