European News

06, Sep 2010.

U.K. factory production grew at a record pace in the third quarter on surging export demand, the Engineering Employers Federation said.

The number of manufacturers saying sales rose in the three months through September exceeded those reporting declines by 33 percent, compared with 30 percent in the second quarter, the EEF and accountancy firm BDO Stoy Hayward LLP said in a quarterly survey released today in London. That’s the highest since the report began in 1995. A gauge of exports also rose to a record.

While Britain’s economy grew at the fastest pace since 2001 in the second quarter, recent data suggest growth may be moderating. Manufacturing, services and construction growth all weakened in August, reports last week showed, adding to the dilemma Bank of England officials face as they mull whether to expand monetary stimulus or withdraw it.

“The recovery does seem to be under way and there appears to be a bit of momentum behind it,” EEF Chief Economist Lee Hopley said in an interview. “There’s a pretty positive outlook for the next three months. Orders are coming in, but that’s not to say there aren’t still question marks over 2011.”

Factory output, which accounts for about 13 percent of the economy, will grow 3.7 percent this year, the EEF said, higher than the 3.5 percent projection made in June. The group also raised its estimate for 2010 economic growth to 1.5 percent from an earlier prediction of 1.1 percent. Manufacturing growth will ease to 3.2 percent next year, it forecast.

Export Demand

A gauge of export orders rose 7 points to 30 in the third quarter, the EEF said. The pound has fallen about 21 percent on a trade-weighted basis since the start of 2007, making exports more competitive.

Survey responses showed sales in the Middle East and east Asia were “particularly strong,” and markets in the European Union have been “better than expected” over the past two quarters, Hopley said.

Bank of England Monetary Policy Committee member Charles Bean said on Aug. 28 that Britain’s economy “remains fragile” and “further policy action may yet be necessary to keep the recovery on track.” While officials left the benchmark interest rate on hold last month, Andrew Sentance voted for an increase for a third month.

U.K. policy makers hold their next meeting on Sept. 9.

“I don’t think there’s anything that will materially change the MPC’s view of the world over the past month,” Hopley said. “I think we’re likely to see the status quo probably until the end of this year.”

While measures of hiring and investment increased, the number of companies saying domestic sales rose in the third quarter exceeded those reporting declines by 20 percent, compared with 24 percent the previous quarter.

“There are still a lot of unknowns about what’s going to happen in 2011,” Hopley said. “No one can sneeze at the moment because it all feels a bit finely balanced for companies looking beyond the end of this year.”

The group surveyed 519 companies from Aug. 4 to Aug. 25.