Further evidence of unexpectedly strong momentum in the private sector arrived yesterday with the publication of the latest survey of business confidence in manufacturing.
The Chartered Institute of Purchasing and Supply's October poll of its managers at the sharp end of industry shows the first improvement in sentiment since May, with across the board amelioration in new orders and employment prospects. Exports showed an especially robust recovery from the previous month, moving more firmly into expansionary territory. This comes despite a recent strengthening in sterling and worries about a new contraction in world trade as "currency wars" start to be waged across the world.
Overall, the index moved from a reading of 53.5 to 54.9. The survey is a reliable leading indicator: any reading above 50 indicates an increase in actual output in around six to nine months.
Although only an early and very partial indicator – manufacturing accounts for just 13 per cent of the economy – it suggests that the faster than forecast growth figures seen in the second and third quarters of this year may be repeated in the last months of the year.
The bullish report makes it less likely that the Bank of England's Monetary Policy Committee will announce a further round of quantitative easing, the direct injection of cash to boost the economy, when it makes its announcement on Thursday.
An upbeat David Noble, chief executive officer at the Cips, said: "Exports are very much the engine of growth within manufacturing at the moment. Whilst it is very positive to see the sector expanding strongly again, it's difficult to predict the impact of fluctuations in export markets so the recovery may continue to be bumpy. What is clear is that manufacturing looks set to drive further GDP growth in the fourth quarter."
Last week's data on third-quarter growth from the Office for National Statistics showed that manufacturing had enjoyed its best 12-month period since 1994, with an annualised growth rate of 4 per cent, and the Cips stressed yesterday that the index of sentiment has remained above the neutral 50 mark for 15 successive months.
The rate of job creation picked up sharply in October. Employment rose at the fastest rate since June, reflecting improved demand and increases to sales and support staff.
However, in "big picture" terms, and despite the optimism of those working in it, manufacturing output is still 10 per cent below it peak in the first quarter of 2008. It has lost 2.2 million jobs, or 26 per cent of the total, during the recession, and, given its now small contribution to the national product, it is of less significance than trends in the service sector, which have been less encouraging.
Joost Beaumont, an economist at ABN Amro, added: "The manufacturing sector will remain solid, although we expect that the pace of expansion will slow somewhat. The positive impact from restocking is likely to fade, while global growth eases as well."