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UK manufacturing hits 16-year high

(SHARECAST) – Activity in the manufacturing sector hit its highest level for 16 years in November, far exceeding analysts’ expectations.

The Markit/Chartered Institute of Purchasing and Supply (CIPS) manufacturing index jumped to 58 in November from 55.4 in October. Analysts had been predicting the reading would slip slightly, but a reading above 50 indicates expansion.

The numbers are good news for the coalition government, which earlier this week welcomed the Office for Budget Responsibility (OBR) raising its growth forecasts for 2010 to 1.8 percent from 1.2 percent – though it cut its forecast for 2011 to 2.1 percent against a previous estimate of 2.3 percent.  

Referring to today’s manufacturing figures, Markit senior economist Rob Dawson said that stronger manufacturing expansion “may well be needed to offset a likely slowdown in consumer spending as austerity measures start to bite”. That echoes the sentiment of the coalition government, which has trumpeted the resurgence of the manufacturing industry as a leader of economic recovery, something Financial Director wrote about earlier this year.

Howard Archer, chief UK and European economist at the analyst group IHS Global Insight, said the figures were “superb”, though he added that manufacturing only accounts for 12.8 percent of the British economy.

“The data are particularly welcome news as it is vitally important that the UK recovery is on as firm a footing as possible before the fiscal tightening really starts to bite from early-2011, starting with January’s VAT hike,” he said.

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