Manufacturing up, but fears grow for exports

The UK economy emitted a faint ray of sunshine yesterday with new figures showing that manufacturing output unexpectedly grew in September, for the first time in three months.

The Markit purchasing managers' index, for which a reading of 50 and above represents expansion, rose from a revised 49.4 in August to reach 51.1 in September.

This is comfortably ahead of the consensus forecast, for a contractionary reading of 48.5.

The growth in manufacturing gave George Osborne, the Chancellor of the Exchequer, a much-needed boost as he prepared to address the Conservative party conference yesterday, after a string of economic disappointments, in particular the 0.2 per cent rise in gross domestic product Britain recorded in the second quarter.

However, investor celebrations were muted as the latest Markit/ Cips manufacturing data concluded that most of September's expansion in manufacturing was "achieved through the fastest depletion of backlogs of work for two years".

Adding further salt to the wound, the report revealed that orders for Britain's exports contracted at the fastest rate since May 2009, suggesting that manufacturing output, which is heavily reliant on exports, was likely to deteriorate.

Rob Dobson, a senior economist at Markit, said: "It is hard to escape the fact that the sector's performance has weakened substantially since the opening quarter's growth surge."

Although manufacturing only accounts for about 13 per cent of Britain's economy, the Government hopes it can lead the recovery at the same time as rebalancing business away from financial services.

However, this prospect was dealt a further blow yesterday as the so-called carbon price – a key barometer for production across the European Union – dropped as much as 7 per cent to a two-and-a-half year low.

Tradable permits to emit 1 tonne of carbon dioxide between now and the end of next year fell to €10.06 (£8.60) a tonne yesterday, as the EU's biggest manufacturers and power generators bet that production would be low, reducing their need for permits.

The carbon price is down by 26 per cent since the start of September and 45 per cent from this year's peak in May, indicating that traders believe the EU economy is in for a rough ride, according to Serge Mazodila at Wheldrake Energy.