Factories post year's highest growth

Growth in the manufacturing sector is on the rise, posting its fastest rate improvement so far this year in October, according to new data.

Figures from the Chartered Institute of Purchasing and Supply's (CIPS) latest purchasing managers' index shows that the industry climbed from 51.5 in September to 51.7 last month.

The score gives manufacturers their third consecutive month above the neutral 50.0 mark.

Readings above the level signify expansion within the sector, while a number below 50.0 signals contraction.

Still, the report shows that input cost inflation rose again to a seven-month high due to rising international fuel and energy prices, which will likely catch the attention of the Bank of England's interest-rate setting Monetary Policy Committee (MPC), which meets tomorrow.

The CIPS index is one of the last reports considered by MPC before setting the base interest rate, and despite predictions earlier in the summer that the it would cut rates again this year, analysts now expect the rate to stay at the current 4.5%.

"This week's data seems to have further dampened any hopes of another rate move next week, irrespective of whether the Bank revises down its estimates of economic growth and inflation at the forecast horizon in its forthcoming inflation report," said George Buckley, UK economist with Deutsche Bank.

"We changed our call back in mid-September, pushing out the view of the next cut from November to February to coincide with the first inflation report of the New Year, but the market is now expecting no further easing from the Bank."

Buckley said that he does not expect overall economic growth to soften any more than it has, but he does not expect it to rise again until the second half of next year.

"The perpetuation of weak growth should be enough to open up a larger (negative) output gap which in turn should prompt further interest rate cuts as future inflation pressures ease," Buckley said. "This process may already have started."