UK manufacturing grows at strongest pace in three years in November; Markit/CIPS Manufacturing PMI jumps to 58.4 from upwardly revised 56.5 in October, its strongest showing since February 2011, as new orders surge to 19-year high

Cindy Allen

LONDON , December 2, 2013 (press release) – * PMI manufacturing survey strongest since Feb 2011

* New orders surge to 19-year high

* Sterling jumps as investors see recovery strengthening

* Bank lending under FLS plan gathers pace

British manufacturing grew at its strongest pace in almost three years in November and a rush of new orders suggested the economy's recovery is getting onto a firmer footing, a survey showed on Monday.

As finance minister George Osborne prepares to announce big upgrades to Britain's economic growth this week, a second set of data showed a flagship scheme to boost lending achieved the highest quarterly net lending since its introduction last year.

Sterling hit a five-year high against a basket of currencies as investors added to bets on Britain's recovery.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) jumped to 58.4 in November from an upwardly revised 56.5 in October. Index readings above 50 indicate expansion.

The index was its strongest since February 2011 and surged past the most optimistic forecasts in a Reuters poll.

"UK manufacturing continued to hit the high notes in November," Markit economist Rob Dobson said.

New orders rose to their strongest level in more than 19 years and exports had one of their best months since the financial crisis, helped by demand from euro zone countries which are trying to dig out from the bloc's debt crisis.

The survey also showed employment for Britain's manufacturing sector rose to its highest since May 2011.

"It looks as if the strong recovery in the sector is translating into meaningful job creation," Markit's Dobson said.

Unemployment has fallen faster than the Bank of England expected, adding to doubts about how long its pledge not to raise interest rates will last.

The BoE said in August it would only consider raising rates once unemployment falls to 7 percent. Governor Mark Carney and other top policymakers have stressed that level is not a trigger and would not compel the Bank to act.

Economists said the rise in employment in the PMI survey - to 54.5 in November from 51.9 in October - was less strong than the jump in output. That supported the BoE's view that firms are likely to squeeze more from existing workers rather than rush to hire new ones, meaning unemployment will fall slowly.

Samuel Tombs saw another positive sign as demand for investment and intermediate goods outpaced that for consumer goods, suggesting employers are confident enough about the recovery to make longer-term investments in their businesses.

Tombs said a pickup in prices charged by manufacturers was not a major challenge to the BoE's determination to keep a lid on borrowing costs.

"Overall the performance of the manufacturing sector is very impressive. One is accustomed to the UK economy being led by the service sector. So to see manufacturing keeping pace with services is very encouraging," BNP Paribas economist David Tinsley said in a note to clients.

BANKS RAMP UP LENDING UNDER FLS

Also on Monday, the BoE said net lending - the difference between money lent and loans repaid - by banks under the Funding for Lending Scheme (FLS) plan was 5.8 billion pounds ($9.5 billion) in the third quarter, more than three times the 1.6 billion the quarter before.

Forty-two banks have so far drawn down 23.1 billion pounds from the FLS for loans to businesses and home-buyers, and net lending by participants has risen by 3.6 billion overall since its launch in July last year.

"An economic recovery has taken hold. These data show that a significant improvement in credit conditions, aided by the FLS, is now feeding through to lending," said Paul Fisher, executive director for markets at the central bank.

Fisher said that lending to small businesses remained subdued, however.

The government said last week it would tweak the scheme next year, no longer providing funds for mortgage lending - a move it hopes will avoid a housing bubble in the UK and stimulate small business lending.

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