British manufacturing unexpectedly broke four straight months of contraction in August as new orders and production grew at their fastest pace since March and prices charged also rose, a survey showed on Thursday.
The Chartered Institute of Purchasing and Supply/NTC Research purchasing managers' index (PMI) rose to 50.1 in August from a revised 49.5 in July and above forecasts for 49.4. The 50 mark divides contraction and expansion.
While stronger than expected, the figures still suggest lacklustre activity and are unlikely to dampen expectations that the Bank of England will have to follow up last month's quarter point interest rate cut with another one.
Still, BoE Governor Mervyn King chose to highlight the positives for British industry in an radio interview before the data were released, sticking to a tone that suggests policymakers don't think there is an urgent need for another move.
Consumer goods production drove up the overall output index to 52.0 from 51.4 while the new orders barometer rose sharply to 51.9 from 50.2. That was the highest reading in five months for both sub-indices and suggests at the very least that conditions are not set to worsen sharply.
The figures also showed the fastest pace in more than two years for manufacturing job cuts, which have become almost systemic in an industry that once dominated Britain's economy but now accounts for less than a fifth of it. The employment index fell to 45.8, its weakest since May 2003, from 46.5.
Prices charged at the factory gate rose for the first time in four months but this was overshadowed, NTC said, by a sharp spike in input costs due mainly to the run-up in energy prices toward new record highs. The output price index rose to 51.1 in August from 48.1 in July while the input prices index hit 57.8, more than six points higher than the 51.5 registered in July.
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