British manufacturing registers two-month expansion

Mon Jun 3, 2013 6:27am EDT
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By David Milliken and Christina Fincher

LONDON, June 3 (Reuters - A strong rise in new orders helped British manufacturing grow at its fastest pace in over a year last month, a survey showed on Monday, and revised data for April meant UK factories have now had a two-month expansion.

Weak lending data from the Bank of England, however, highlighted the ongoing challenges facing the economy.

Banks and building societies taking advantage of the Bank's Funding for Lending Scheme cut lending by 300 million pounds ($455 million) in the first three months of the year, leaving the central bank hoping for a pick-up later in 2013.

But economists said the strong manufacturing data made it increasingly unlikely that policymakers would return to their previous approach of large-scale bond purchases, either at BoE Governor Mervyn King's last rate-setting meeting this week or once Mark Carney succeeds him on July 1.

The Markit/CIPS Purchasing Managers' Index rose to a 14-month high of 51.3 in May, and April's figure was revised up to above the 50-mark that divides growth from contraction.

"This reduces the likelihood of more quantitative easing, at least in the immediate term. I think this is part of a positive trend," said George Buckley, UK economist at Deutsche Bank.

Factory output contracted 0.3 percent in the first three months of 2013 and has been a drag on growth for much of the past year, but May's figures offered a positive outlook, with orders rising at their fastest pace in more than two years.

"Signs that the manufacturing sector is recovering will add further weight to the Bank of England's decision to wait and see before adding to its accommodative policy stance," said Markit economist Rob Dobson.   Continued...

A worker brazes a component at manufacturing firm Sigma UK in Hinckley, central England, May 1, 2013. REUTERS/Darren Staples