Manufacturing unexpectedly accelerates in euro area and UK

Manufacturing in the euro area unexpectedly accelerated in October as German companies fared better than initially reported, according to Markit Economics.

A Purchasing Managers’ Index for the industry rose to 52.3 from 52.0 in September, exceeding an October 23rd estimate for an unchanged reading and a 50 mark that divides expansion from contraction, the London-based company said in a report on Monday.

UK manufacturing growth also unexpectedly accelerated to the fastest in 16 months in October as new orders surged. In a monthly report , Markit Economics said factories bucked this year’s downward trend and started the fourth quarter of the year on a stronger footing. The manufacturing index rose to 55.5 from a revised 51.8 in September, beating economists’ forecast for a reading of 51.3.

The report indicates the economy is defying headwinds from emerging markets and maintaining some momentum. It may also reinforce the view of some Bank of England officials, who say that the UK economy is strong enough to warrant a rate increase soon.

The pound jumped after the report and was up 0.4 per cent at $1.5490 . The BOE’s nine-member committee will announce its next interest-rate decision and publish new forecasts on Thursday. It said last month that external factors weren’t having a material impact on the UK, a view reinforced by the

Markit survey.

Manufacturing accelerated in Italy, Austria and the Netherlands and grew in all nations covered except Greece. While the uptick may well be a consolation for policy makers concerned with weaker global trade and too-low inflation becoming entrenched, it risks being too small to put the region's fragile recovery onto a more solid footing.

The European Central Bank is preparing to add to a €1.1 trillion asset-purchase plan in December, when updated forecasts will reveal the impact of current stimulus. "The euro-zone manufacturing recovery remains disappointingly insipid," said Chris Williamson, chief economist at Markit. "The October survey is signaling factory output growth of only 2 per cent per annum, a lackluster performance given the amount of central-bank stimulus in place."

Employment growth was at the weakest since February, Markit said. At the same time, new orders increased at the fastest pace in 18 months, keeping pressure on manufacturers’ capacity.

A gauge for outstanding business signaled growth for a sixth month in October. German manufacturing slowed less than anticipated. A PMI slipped to 52.1 from 52.3 in September, compared with an initial reading of 51.6. Stronger trends in output and new-order components were largely responsible for the upward revision of the euro-area gauge, Markit said.

Bloomberg