Manufacturing activity expands at record rate

(SHARECAST) The UK manufacturing purchasing managers’ index (PMI) came in at 62 in January, well ahead of expectations and the highest reading since the survey began in 1992.

The data will lift hopes of economic expansion in the first quarter of 2011 following the surprise contraction in the last quarter of 2010.

It will also add to the dilemma facing the Bank of England’s Monetary Policy Committee (MPC) as it contemplates whether to raise interest rates. High inflation appeared to be pointing towards a rise in interest rates, and led to two MPC members voting for a rise in rates at the next meeting, but the surprise fall in overall economic activity in the fourth quarter reported last week suggested rates should stay at 0.5 percent.

The latest data will strengthen the arguments of those who favour a rise in rates.

“The hackles of the hawks on the Bank of England’s Monetary Policy Committee will no doubt be raised,” said Rob Dawson, senior economist at survey compiler Markit.

Much will now rest on activity in the services sector, which is much larger than manufacturing. Data from the sector are due on Thursday, with numbers from the smaller construction sector due February 2.