UK Manufacturing Growth Jumps to 2-Year High on Revived Demand

Manufacturing activity in the UK expanded at the fastest pace in more than two years in June with improved domestic and overseas demand as the country's economic recovery is gaining momentum.

The seasonally adjusted Markit/CIPS Purchasing Managers' Index (PMI) increased to 52.5 in June from a revised 51.5 in May. Economists expected a reading of 51.5 for the month.

This was for the third straight month the index showed a reading above 50, the neutral mark between contraction and expansion in the sector.

"The UK manufacturing sector made positive strides on the recovery path during the second quarter of the year. June saw output and new order growth hit rates not seen since early-2011, as a brightening domestic market and resilient overseas demand led to a broad-based expansion across the sector," Rob Dobson, senior economist at Markit, said in a statement.

Markit noted that the latest expansion in the manufacturing sector was "broad-based" with all subsectors covered in the survey showing increases. The textiles and clothing and food and drink categories showed the strongest rate of growth in June.

New orders rose for the fourth consecutive month on strong demand from domestic markets and from clients abroad, especially in Europe, China, North America, Scandinavia and the Middle East.

However, employment in the manufacturing sector was little changed in June.

The British government is looking to rebalance the economy more towards the manufacturing sector, shifting from its over- dependence on the services sector. At present, the manufacturing sector accounts for just 10% of the UK gross domestic product.

Markit said that manufacturing output rose by about 0.5% over the second quarter, compared to a 0.3% growth in the first quarter. The development along with the strong improvements in the services and construction industry would help the economy to record a growth rate of at least 0.5% in the second quarter, according to Markit.

Therefore, the financial information group does not expect the Bank of England to increase its asset purchases at its meeting later this week. Mark Carney is replacing Mervyn King as governor of the central bank. Carney is widely expected to seek measures to speed up Britain's exit from almost two years of economic slowdown. Nevertheless, he is not expected to take any immediate action at his first policy meeting, which ends on Thursday.

Separate PMI surveys by Markit for the eurozone showed manufacturing activity in the region continued to decline in June but the pace of decline slowed. The headline index rose to a 16-month high of 48.8 from 48.3 in May.