U.K. Factory Growth Quickens to Fastest in Two Years

U.K. manufacturing grew at the fastest pace in two years and mortgage approvals rose more than forecast, adding to signs that the recovery is gaining traction.

A factory gauge rose to 52.5 in June from 51.5 in May, Markit Economics and the Chartered Institute of Purchasing and Supply said today in London, above the 50 level that divides expansion from contraction. A separate report showed banks granted the most home loans in May since 2009.

The data come as Mark Carney begins his governorship of the Bank of England, which will probably leave its stimulus program unchanged at a meeting of policy makers on July 4. Still, data from China and the euro area today point to signs of strain that could curb Britain’s recovery.

“It’s encouraging to see some decent signs of recovery in manufacturing and housing, and overall it looks like the economy may have expanded at a faster rate in the second quarter,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “Whether Carney can persuade the other policy makers to do more quantitative easing this week is doubtful, and the time for more action will most likely be in August.”

Economists had forecast a factory index reading of 51.4 in June, according to the median of 34 estimates in a Bloomberg News survey. The pound erased its loss against the dollar after the data and traded at $1.5241 as of 10:56 a.m., up 0.2 percent from June 28.

Economy Accelerates

New orders at manufacturers rose for a fourth month in June, while input costs fell for a third month. Textiles and clothing and food and drink categories led the pickup in manufacturing, though all categories covered by the survey showed improvement, Markit said.

The strength in production suggests gross domestic product rose 0.5 percent in the second quarter, up from 0.3 percent in the first three months of the year, Rob Dobson, senior economist at Markit, said in the statement.

Bank of England data today showed lenders granted 58,242 home loans in May, up from 54,354 in April. Net mortgage lending rose 282 million pounds ($429 million). The government’s Funding for Lending Scheme has helped ease credit strains, supporting the recovery in the housing market. Property researcher Hometrack said today that house prices rose 0.4 percent in June, matching the biggest increase in six years.

Still, the BOE said loans to non-financial businesses fell by 1.3 billion pounds in May from April. Lending dropped 3.6 percent from a year earlier.

Carney’s Welcome

The BOE’s Monetary Policy Committee will leave its bond-purchase plan at 375 billion pounds, according to all 44 economists in a Bloomberg News survey. Officials will also keep the key interest rate at 0.5 percent, a separate poll showed. The bank will announce its decision at noon in London on July 4.

“Mark Carney has been welcomed by some solid data releases on his first day,” David Tinsley, an economist at BNP Paribas SA in London and a former central bank official, said in an e-mailed note. “The question is whether the improvement in the activity data is strong enough and whether it will prove enduring.”

Former BOE deputy governor John Gieve said Carney faces a challenge in pushing through more stimulus. Mervyn King and two colleagues failed in recent months months to persuade the nine-member MPC to authorize more bond purchases.

“This is quite hard as a majority has voted against an extra boost for several months in a row and the news is a little bit better,” Gieve said in an interview with Bloomberg Television. “He’s got a big persuasive job if he wants to change their views today.”

China Weakness

Elsewhere, two gauges of China’s manufacturing fell in June. An official Purchasing Managers’ Index dropped to 50.1, the lowest level in four months, from 50.8, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing. A private PMI from HSBC Holdings Plc and Markit Economics was 48.2, the weakest since September.

In the euro area, manufacturing output contracted less than initially estimated in June. A gauge in the 17-nation region increased to 48.8 from 48.3 in May, Markit said. That’s above an initial estimate of 48.7 on June 20. Spain’s manufacturing output stabilized for the first time since April 2011, with an index rising to 50 from 48.1.

Still, the euro-region jobless rate rose to 12.2 percent in May from a revised 12.1 percent in April. Inflation accelerated to 1.6 percent in June from 1.4 percent in May, matching the median estimate of 40 economists in a Bloomberg survey.

A U.S. manufacturing report from the Institute of Supply Management may show an increase to 50.5 in June from 49 in May, according to the median of 71 estimates in a Bloomberg survey. The May reading was the weakest in four years. The Tempe, Arizona-based group will publish the data later today.

(Eurostat corrects euro-area unemployment data for May and April in penultimate paragraph of story originally published on July 1.)
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