LONDON (Reuters) - British manufacturing grew much more strongly than expected in June, suggesting the country’s recovery is broadening just as the Bank of England prepares to set out its plan for steering the economy back to health.
Car sales also rose, house prices continued to climb and British retailers had their best month since 2006.
Along with Monday’s purchasing managers index showing the services sector growing at its fastest in more than six years, it all confirmed a rebound that was unheralded just a few months ago. There are some concerns, however, that much of it is being driven by easy lending and increased debt.
Manufacturing rose by 1.9 percent in monthly terms, stronger than even the highest forecast in a Reuters poll and its fastest growth since July of last year.
All 13 components of the manufacturing index showed growth for the first time since June 1992, the Office for National Statistics said.
Output in the industrial sector overall - which makes up about one sixth of Britain’s economy - climbed 1.1 percent from May, well above forecasts for a 0.6 percent rise and also its strongest monthly pace since July 2012.
Yields on 10-year British government debt hit their highest level in a month after the manufacturing data and sterling rose.
Other data on Tuesday showed British house prices rose in July at their fastest annual pace in nearly three years and retail sales were 3.9 percent higher than a year earlier.
UK car sales, meanwhile, grew at an annual 12.7 percent for the month, prompting the trade industry group SMMT to increase its forecast for the year.
After two years of stagnation, Britain’s economy has shown signs of recovery but nonetheless the Bank of England on Wednesday is expected to try to persuade markets, companies and households that interest rates are unlikely to rise soon.
George Buckley, an economist with Deutsche Bank, said the signs of recovery might actually provide more encouragement to Bank of England Governor Mark Carney to give so-called forward guidance about future interest rates in order to prevent a rise in yields from smothering Britain’s still weak economy.
“He is likely to argue that low levels of output mean the economy is fragile, thus his desire to insulate the front-end from better growth outturns,” Buckley wrote.
Britain’s economic recovery so far has relied largely on higher consumer spending, itself helped along by easy finance.
Economists said the manufacturing data offered hope that the recovery was building a more solid foundation.
Victoria Clarke, an economist at Investec, said manufacturing surveys had hinted at a recovery in the sector in recent months and Tuesday’s data “points towards the UK’s recovery being a bit more broad-based - certainly moving away from a recovery that looked to be more services-dominated than anything else.”
The ONS said on an annual basis, industrial output was up 1.2 percent, compared to forecasts for a 0.7 percent rise, its fastest yearly increase since January 2011.
The biggest contributor to the monthly rise in manufacturing was transport equipment, reflecting strong growth in the auto sector which has benefited from higher exports.
Editing by Jeremy Gaunt