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British manufacturing output in September recorded the biggest increase in seven years, indicating the possibility for a recovery in the near future.
Output of the manufacturing industries increased 1.7% month-on-month in September, following a revised 2% fall in August, a report published by the Office for National Statistics revealed Thursday. The monthly growth rate was larger than the expected 1%.
Within the manufacturing sector, production increased in ten of the 13 sub-sectors and decreased only in three sub-sectors. Electrical and optical equipment industries showed the largest increase of 8%. By contrast, output dropped 1% in machinery and equipment industries.
The latest increase in the manufacturing output came after a very large decline in August. The ONS might revise its initial third quarter GDP estimate upwards, said British Chambers of Commerce's Chief Economist, David Kern. He added, "There is no room for complacency, and it remains critically important to bring the recession to an end as soon as possible."
Compared to September 2008, manufacturing output slipped 9.3% versus a revised 11.6% decrease in August. Consensus forecast was for a 9.7% drop. In the third quarter, manufacturing output edged down 0.1% compared with the prior quarter and was 10.5% lower against the third quarter of 2008.
Industrial production grew 1.6% in September from the prior month, while the expected increase was 1.2%. In August, production had declined 2.6%, revised from 2.5%.
With an increase in oil and gas production, mining and quarrying output grew 1.7% in September. At the same time, energy supply output was down 0.3% on the month with increases in the gas and water supply outputs being offset by a fall in the electricity supply output.
Further, the ONS reported an annual fall of 10.3% in September industrial output, in line with expectations, but smaller than the revised 11.5% drop in August. Total production decreased 0.8% in the third quarter compared with the previous quarter and fell 10.5% from last year.
Recent PMI survey showed that the manufacturing PMI rose to a two-year high in October boosted by a rise in output and new orders. The PMI reading was 53.7, the third highest in the history of the series. Also, service sector activity growth in October was the strongest in over two years.
Meanwhile, the British economy failed to exit recession in the third quarter, while other major economies already showed signs of recovery. The economy is undergoing its longest streak of contraction on record, with a 0.4% sequential GDP decline in the third quarter.
Today, the Bank of England is expected to raise the size of its quantitative easing measures to GBP 225 billion to aid the ailing economy. Also, the central bank is set to maintain the key rate at a historic low. The announcement is due at 7 am ET.
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