Manufacturing becomes latest sector to show jump in output

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The Independent Online

Manufacturing is the latest bright spot on a rapidly improving economic horizon, official figures suggested yesterday.

The Office for National Statistics reported that output from Britain's manufacturers expanded by 1.9 per cent in June, the fastest pace since 2010 and well ahead of City expectations of 1 per cent growth.

For the first time since 1992 all sectors of the manufacturing industry – from rubber products to chemicals to metals – showed an improvement during the month.

The figures were seized upon by City economists as evidence that the recovery is becoming more broad based, and less dependent on services expansion. "It looks as if the economy is benefiting from a period of both stronger and better-balanced growth," said Samuel Tombs of Capital Economics.

"It is striking that the improved news on the UK economy is coming across a wide range of sectors, which lifts hopes that the recovery is broadening as well as deepening," said Howard Archer of IHS Global Insight.

The overall level of industrial production, which includes energy generation, was up 1.1 per cent on the month. The ONS estimates that manufacturing grew by 0.7 per cent in the second quarter of the year, following a contraction of 0.2 per cent in the first quarter.

In a further sign of growing economic momentum, the Society of Motor Manufacturers and Traders (SMMT) reported yesterday that sales increased by 12.7 per cent in July to 162,228, the 17th successive monthly rise. The SMMT also raised its forecast for new UK car sales in 2013 to 2.22 million.

The housing market also seems to be bubbling again, with the Halifax reporting that house prices rose 0.9 per cent in July. The bank reported that home sales in the first half of the year were up 6 per cent on the same period of 2012. Martin Ellis, Halifax's housing economist, said that the Treasury's Help to Buy subsidies and the Bank of England's Funding for Lending Scheme are likely to be raising demand for housing.

The most recent surveys of services manufacturing and construction all indicate healthy expansion, which has prompted many private sector economists to revise up their growth forecasts for 2012.

The latest estimate from the National Institute of Economic and Social Research, released yesterday, is that the economy grew by 0.7 per cent in the three months to July. That would signify progress on the 0.6 per cent expansion between April and June estimated by the ONS last month.

However, despite June's strong manufacturing growth, the level of output from the sector remains 10 per cent below its pre-recession peak, reached in early 2008. Output is also still 3 per cent below its level in the middle of 2011, before activity double-dipped in the eurozone crisis. "There is still a long way to go," said Nida Ali, economic adviser to the Ernst and Young Item Club.

The Bank of England will unveil its own latest growth forecasts today in its quarterly Inflation Report. The Bank will also set out its thinking on the merits of offering financial markets so-called "forward guidance" on the future path of interest rates.