UK manufacturing sector boosted by rising demand for exports

A steel works in Rotherham. Photograph: Christopher Thomond for the Guardian

Britain's manufacturers enjoyed rising export demand and hired new workers in October, according to a survey.

The closely watched Markit/CIPS UK Manufacturing PMI report suggested export orders grew at their fastest pace in more than two years, although overall activity rose at a slightly softer pace.

Although manufacturing output remains well below the level enjoyed before the recession, it notched up its seventh straight month of improvement with a reading of 56.0. That was well above the 50-mark that separates expansion from contraction and down slightly from 56.3 in September. Economists had forecast a reading of 56.1 in a Reuters poll.

The survey follows the latest official data showing the UK economy grew by 0.8% in the third quarter. With households under pressure from stagnant wages and rising bills and prices, there have been questions over whether that pace of growth can be maintained in the consumer-dependent UK economy. But economists said manufacturing could help drive overall growth.

Rob Dobson, senior economist at survey compilers Markit, said: "Despite only accounting for less than 11% of the economy, the current strength of growth seen in manufacturing means the sector will still provide a major boost to the economy in October, boding well for the strong pace of economic growth we saw in the second and third quarter being sustained into the fourth quarter.

"The survey suggests manufacturing output is growing at a quarterly rate of around 1%-1.5%."

But he also highlighted the challenges facing the government as it vows to shift economic dependence towards manufacturing and exports.

"Maintaining this solid expansion will be important if we are to see any real signs of the economy rebalancing, as manufacturing remains 9% smaller than its pre-crisis peak, while services have already closed the gap," added Dobson.

The survey suggested manufacturing employment rose for the sixth consecutive month as total new orders for the sector continued to rise. Within that, export orders increased at the fastest pace since February 2011 as companies reported growing demand from Asia, the US, mainland Europe, Ireland, the Middle East and Russia.

EEF, the manufacturers' organisation, welcomed the export growth.

"Manufacturers' focus on developing new products and services to support their expansion into new export markets is making a strong contribution to this trend," said the EEF's chief economist, Lee Hopley.

"Buoyant output across all sectors and an upbeat view of demand at home and in overseas markets bodes well for a sustained recovery in the fourth quarter and into 2014. While we expect to see a mild contraction in output overall for 2013, we are forecasting growth to bounce back to over 2% next year."

Economists said the latest show of continued growth in the sector would probably boost market speculation that the Bank of England will have to raise borrowing costs from their current record low of 0.5% sooner than suggested.

"With orders and production indices remaining firm, the PMI is consistent with an acceleration in GDP growth in the fourth quarter from the 0.8% quarter-on-quarter rate recorded in the third quarter, which should keep early rate hike expectations and sterling supported, particularly against the euro," said James Knightley at ING Financial Markets.