Manufacturers report best order book for six years

Bank of England still expected to expand quantitative easing policy
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Britain's struggling manufacturing sector may finally have begun emerging from recession, new data revealed yesterday, with businesses reporting the strongest increase in new orders for six years.

The Chartered Institute of Purchasing & Supply's purchasing managers' index (PMI) reached 53.7 last month, up from 49.9 in September – a reading above 50 signals growth rather than contraction – one of its biggest ever rebounds. The performance of the index, which is calculated on the basis of manufacturers' reports about their orders, production, employment and inventory, prompted a positive reaction from analysts.

David Noble, chief executive of Cips, said: "Manufacturing has turned a corner and is starting to pull itself out of recession, though the sector has been so hard hit it will be a long time before it returns to its previous level."

The figures will also buoy the Bank of England's Monetary Policy Committee, which begins its monthly two-day meeting tomorrow. The MPC is expected to announce a rise in the size of the Bank's programme of quantitative easing following the disappointing GDP figures announced in October, which revealed that the UK remains in recession.

Colin Ellis, an economist at Daiwa Securities, said the upbeat data on manufacturing would give the MPC pause for thought, though he still expects the QE programme to be extended from £175bn to £225bn. Mr Ellis warned that some caution needed to be applied to the PMI data, because it had wrongly given more optimistic signals in recent months.

"We would normally put considerable weight on this data, but in recent months the PMIs have diverged significantly from the official ONS data," he said. "These surveys suggested that the UK exited recession in May, and we all know how that has turned out so far."

Howard Archer, an economist at IHS Global Insight, said manufacturers had received a genuine boost from the depreciation of sterling, which has aided exports, as well as the sharp reductions in stock levels they have already made.

"The survey raises hopes the industrial sector will expand in the fourth quarter for the first time in two years, helping the overall economy to finally return to growth," Dr Archer said.

However, Jeegar Kakkad, a senior economist at the EEF, the manufacturers' organisation, warned against complacency. "The fourth quarter was always going to be better than the rest of the year, and with the fiscal stimulus set to be withdrawn in January, the dangers of a double dip are still very real," he said.

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