Factory activity at two-year high

By Fiona Shaikh

LONDON (Reuters) - Manufacturing activity grew at its strongest rate in two years in October as new orders rose at their fastest in almost six years and firms started rebuilding their stocks, a survey showed on Monday.

The CIPS/Markit purchasing managers index of manufacturing activity rose to 53.7 in October from an upwardly revised 49.9 in September, signalling the fastest pace of growth since November 2007 and beating forecasts for a rise to 50.0.

The improvement was driven by a surge in new orders, with the index for this measure jumping 6.8 points on the month to 59.5, the highest since January 2004, when it was 61.5.

"The latest data are well above the market consensus," said Rob Dobson, senior economist at Markit.

"Looking ahead, the combination of rising new orders, lean inventories, high orders-inventory ratio and weak sterling all suggest that the sector should continue its recovery."

The figures suggest Britain's economy made a strong start to the final quarter of this year, having suffered its longest recession on record, and may reassure Bank of England policymakers their measures to stimulate growth are working.

The central bank will decide on Thursday whether to extend its 175 billion pound quantititative easing programme aimed at boosting the economy. Monday's data could persuade policymakers to call a pause for now.

However, two-thirds of economists in a Reuters poll reckon the central bank will top up the scheme and that last month's official data showing the economy unexpectedly shrank in the third quarter will encourage them to inject more stimulus.