Fuel to the fire: UK manufacturing increased more than expected last month
The UK's manufacturing output increased more than expected in October, a closely-watched index has shown, adding further fuel to expectations of an interest rate hike tomorrow.
IHS Markit's purchasing managers' index for the manufacturing industry rose to 56.3 in September, against expectations it would stay flat on last month's 55.9. Any figure above 50 shows a rise in output.
The figure suggests more strength in the economy than expected, which will increase economists' hopes the Bank of England's monetary policy committee (MPC) will decide on a 0.25 percentage point interest rate rise at its meeting tomorrow.
The pound edged higher on the news, spiking to $1.3318 against the dollar before falling back to $1.3298, 0.1 per cent higher on the day. It rose 0.2 per cent against the euro to €1.1442.
"October’s… survey will reassure the MPC that the economy is coping relatively well with the prospect of imminently higher interest rates," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
"The pickup in orders solely reflected stronger domestic demand; the export orders index fell back to 54.3, from 55.4.
"Admittedly, small drops in the future activity and quantity of purchases indices… suggest that manufacturers are preparing for demand to weaken a little, perhaps in response to higher interest rates. Still, this deterioration in confidence probably is much more modest than the more dovish members of the MPC had feared."
However, Mike Rigby, head of manufacturing at Barclays, added that the Bank of England's decision may take its toll on manufacturers.
"Although demand from both home and overseas markets remains robust, manufacturers will have half an eye on what the MPC decides to do tomorrow and the potential impact an interest rate rise would have on sterling."