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Monday, November 01, 2010

Growth Detected

Financial "experts" have been pleasantly surprised by the Purchasing Managers Index (PMI), which shows that the UK manufacturing sector experienced an accelerated pace of growth from a level of 53.52 in September to 54.93 in October.

To add to the positive news, the PMI survey also showed that the "sub-index" of jobs rose from 48.97 to 54.97 during the same period; ie employment in the manufacturing sector has increased.

However, before the champagne is cracked open, several caveats need to be made:

1 The UK is hauling itself out of a deep and prolonged recession, it is not unexpected that initial figures will show a strong bounce back (as they are coming from a low level).

2 The government's plans for reducing the public sector debt (ie government cuts) may well dampen down future growth prospect.

3 The better than expected figures may, perversely, negatively impact the economy by putting the "brakes on" plans by the Bank of England for further quantitative easing.

Time will tell as to whether these figures are merely a "dead cat bounce".

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