U.K. Manufacturing Grows Fastest in Almost Three Years

U.K. manufacturing expanded more than forecast in November, indicating the recovery is maintaining its momentum in the final quarter of the year.

A gauge of factory activity increased to 58.4, the highest since February 2011, from a revised 56.5 in October, Markit Economics said in a report in London today. That exceeded the median estimate of 30 economists for a reading of 56.1. The report also showed that demand and payrolls rose last month.

The Bank of England raised its forecasts last month and said the recovery has “taken hold” after economic growth accelerated to 0.8 percent in the third quarter. That’s providing an upbeat backdrop for Chancellor of the Exchequer George Osborne as he prepares to deliver new projections and fiscal plans on Dec. 5.

“The U.K.’s recovery is mostly domestic, driven by very loose monetary policy and declining uncertainty,” said Rob Wood, an economist at Berenberg Bank in London. “Now the U.K.’s main export markets are starting to recover –- the euro zone and the U.S. -– trade flows should improve too.”

The pound advanced 0.3 percent to 82.74 pence per euro at 2:07 p.m. London time after appreciating to 82.53 pence, the strongest since Jan. 11. The U.K. currency traded at $1.6369 after reaching $1.6443, the most since August 2011.

Demand Rises

The U.K.’s manufacturing Purchasing Managers’ Index has been above the 50 level that divides expansion from contraction for eight straight months. Today’s report showed factory production and new-order growth were close to the highest in two decades, while job creation was at its strongest since May 2011.

“The economic plan is working and a recovery is under way,” Osborne said on BBC television yesterday. “In the Autumn Statement, I will say the job is not yet done.”

Morgan Stanley said today that the U.K. economy will expand 0.7 percent in the fourth quarter, citing improving data as it revised a previous forecast of 0.5 percent. The British economy will grow 2.5 percent next year, the bank said, compared with a previous forecast of 2.4 percent made in September.

“Prospects for the U.K. economy have improved,” Joachim Fels, chief international economist at Morgan Stanley, told reporters in London today. “The U.K. will be first out of the block,” raising interest rates before the U.S. Federal Reserve, the European Central Bank and the Bank of Japan, he said.

China Manufacturing

Export orders also continued grow, with improved demand from customers in Asia, the U.S., Germany and France, Markit said. A separate report on the euro-area showed factory growth in the 17-nation region expanded faster than initially estimated last month.

In China, manufacturing growth exceeded economists’ estimates in November, with an index holding at 51.4, the National Bureau of Statistics and China Federation of Logistics and Purchasing said. That was above the 51.1 median of 26 forecasts in a Bloomberg survey. A separate gauge from HSBC Holdings Plc and Markit today was 50.8, also beating forecasts.

Factory growth in the U.S. slowed last month, economists said before a report later today. The Institute for Supply Management’s manufacturing index fell to 55.1 from 56.4 in October, according to the median of 50 estimates.

Credit Focus

BOE Governor Mark Carney changed the central bank’s flagship credit program last week to refocus it on business lending. BOE Chief Economist Spencer Dale said on Nov. 26 that “for sustainable growth what we need to see is stronger investment.”

Data today showed lending through the so-called Funding for Lending Scheme increased in the third quarter by the most since it was introduced last year, led by Lloyds Banking Group Plc and Nationwide Building Society. Lending rose 5.8 billion pounds ($9.5 billion) from the second quarter, while cumulative net lending turned positive and is now 3.6 billion pounds.

“A significant improvement in credit conditions, aided by the FLS, is now feeding through to lending,” BOE Markets Director Paul Fisher said in a statement. “But credit supply to businesses remains relatively subdued, especially to small and medium-sized enterprises.”

The U.K. manufacturing report showed that while input costs increased the most in three months in November, producers were able to raise prices at the fastest pace in more than two years. Markit said that the manufacturing outlook was “positive” in November as companies reduced stock levels, taking the orders-to-finished goods inventory ratio to a record high, suggesting that production growth will be maintained.

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