UK factory activity unexpectedly rebounds in December: PMI

Wed Jan 2, 2013 6:17am EST
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By David Milliken

LONDON (Reuters) - British factory activity jumped unexpectedly in December to grow at its fastest pace since September 2011, a survey showed on Wednesday, raising the chance that the economy eked out growth at the end of 2012.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) rose to a 15-month high of 51.4 in December from an upwardly revised 49.2 in November - a far stronger increase than any predicted in a Reuters poll of 24 economists.

Britain's economy is forecast to shrink 0.1 percent in the last three months of 2012. But following stronger-than-expected official services sector data late last month, Wednesday's figures boost prospects that the economy can avoid slipping into its third period of contraction since the 2008 financial crisis.

The upturn in the manufacturing index takes it above the 50-mark that separates growth from contraction for the first time since March, and breaks with poor official data, which showed a 1.3 percent fall in factory output for October.

Weak PMI figures for October and November mean the manufacturing sector probably still contracted in the fourth quarter as a whole, Markit said, but the drag on overall economic output should be less than previously feared.

"It was a pleasant start to the new year and I think it's justified," said Alan Clarke, UK economist at Scotiabank. "There's probably further improvement ahead and it will be a less negative start to the year than what we've had of late."

Markit said the gain was largely driven by domestic demand, and the figures contrast with a move deeper into contractionary territory in the survey's euro zone equivalent, also released on Wednesday.

Ten-year British government bond prices fell after the data, as it encouraged investors to pursue a move into riskier assets which started after a U.S. budget deal, driving British share prices .FTSE to their highest level since July last year.   Continued...

Employees of JJ Churchill precision engineering polish turbine blades in the company's factory in Market Bosworth, central England, October 10, 2012. REUTERS/Tom Bergin