British factory activity has seen an unexpected increase with the sector growing at its fastest rate for 15 months in December as domestic demand strengthened.
Economists had been forecasting that the figure would decrease to 49.1, (a reading above 50 indicates growth). In reality the figure soared to 51.4 in December up from November’s figure of 49.2.
Britain’s economy is forecast to shrink 0.1 percent in the last three months of 2012. But following stronger-than-expected official services sector data late last month, Wednesday’s figures boost prospects that the economy can avoid slipping into its third period of contraction since the 2008 financial crisis.
The Markit compiled data shows that the increasing strength in the UK’s manufacturing has been directly linked to a perceived easing of the Euro crisis. At the end of 2012 the Eurozone took action to lessen the damage being created by the debt crisis leading to an ease in tensions and a slowly improving increase in demand for British goods.
“There are increasing signs of firms starting to move out of this cost-cutting mode, though it is clear that the outlook remains far from certain,” Markit economist Rob Dobson said. “Business confidence among producers therefore remains fragile and could easily be derailed.”
Weak PMI figures for October and November mean the manufacturing sector probably still contracted in the fourth quarter as a whole, Markit said, but the drag on overall economic output should be less than previously feared.
“It was a pleasant start to the New Year and I think it’s justified,” said Alan Clarke, UK economist at Scotiabank. “There’s probably further improvement ahead and it will be a less negative start to the year than what we’ve had of late.”
Manufacturing across the Eurozone fell more than estimated as the regions austerity measures begin to take effect. The slowdown in European manufacturing increases the likelihood that the region could remain stuck in recession for at least the first quarter of 2013.
The Pound to Euro exchange rate is currently trading at 1.2296
The Pound to US Dollar exchange rate is currently trading at 1.6303
The Pound to Australian Dollar exchange rate is currently trading at 1.5537
The Euro to US Dollar exchange rate is currently trading at 1.3255
The Euro to Pound exchange rate is currently trading at 0.8129
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