(Adds sterling reaction, context on May and Hammond, economist
and manufacturer reactions)
LONDON Oct 3 British factories had their
strongest month in more than two years in September, a survey
showed, raising doubts about whether the central bank and
finance ministry will announce more stimulus measures to offset
the economic hit of the Brexit vote.
The Markit/CIPS Purchasing Managers' Index (PMI) showed a
surge in export orders, helped by the fall in the value of the
pound after June's referendum vote to leave the European Union.
The manufacturing index reached its highest level since June
2014 in September, rising to 55.4 in September from 53.4 in
August as it continued to rebound from a three-year low in July.
Sterling erased some of its earlier losses made when it
slumped to a three-year low against the euro following Prime
Minister Theresa May's announcement of a March deadline for
starting formal divorce talks with the EU.
September's factory PMI exceeded all forecasts in a Reuters
poll, and suggested third-quarter growth in manufacturing -
which accounts for 10 percent of Britain's economy - will be the
strongest so far this year.
Consumer goods producers did best, reflecting continued
strong demand from households, while export orders rose at the
fastest rate since January 2014.
Demand for investment goods also rose, which Markit said
suggested at least a temporary pick-up in businesses' investment
intentions since the start of the year.
Manufacturing group EEF said strong PMI data elsewhere in
Europe on Monday suggested stronger demand would last for
The flip side of the weak currency is inflation. Price rises
slowed slightly from a five-year high in August, but factories'
raw material costs were still rising at double-digit rates, some
of which was being passed on to consumers.
Investors are watching for a PMI reading of the bigger
services sector on Wednesday for an indication of how quickly
the British economy has recovered from the Brexit shock.
"But for the Bank of England, this adds to a raft of strong
data which undermine the case for an additional rate cut in
November," Elizabeth Martins, an economist at HSBC, said,
referring to Monday's manufacturing survey.
The signs of resilience in the economy were also noted by
finance minister Philip Hammond who is due to announce his first
budget plans on Nov. 23. He said economic data for the first
half of 2016 showed the economy was running at "8 out of 10".
"Some upbeat data of late have removed the urgency for
Hammond to throw the kitchen sink at the economy in the Autumn
Statement," Alan Clarke, an economist at Scotiabank, said.
Over the longer term, Brexit represents a big challenge to
the British economy as the government tries to keep as much
access as possible to EU markets while also heeding the message
from voters to take more control over immigration, something
that could fall foul of the EU's freedom of movement principle.
Japanese carmaker Nissan said on Thursday it wanted
Britain to compensate it for any tariff barriers if it was to
maintain investment plans. On Friday, Jaguar Land Rover
said other auto manufacturers would need a level
playing field if Nissan received assistance.
(Reporting by Helen Reid; editing by William Schomberg/Ruth