Optimism in ascendancy with fresh good figures

PREDICTIONS of a double-dip recession appeared unfounded yesterday as the latest manufacturing figures revealed a surprise jump in activity in October - the first acceleration in output growth for seven months.

City economists were surprised as the Purchasing Managers' Index (PMI) leapt to 54.9 from September's ten-month low of 53.5 despite predictions of a further fall.

It is the second time in less than a week that the economy has confounded the Square Mile after last week's Q3 GDP figures showed 0.8 per cent growth - defying gloomy forecasts of lacklustre 0.4 per cent output.

Economists said the shock PMI figure, published by the Chartered Institute of Purchasing and Supply and Markit, suggested the recovery was on a more stable footing than previously thought. The rise was fuelled by increased orders and faster export growth, the latter jumping to a five-month high. There was also a sharp rise in manufacturing employment.

James Knightley, economist at ING Bank, said: "This report confirms that the improving picture painted by last week's good GDP data has continued into the final quarter of the year.

"It will also provide further ammunition for the government to argue that the economy is strong enough to withstand the fiscal austerity measures they are implementing."

Rob Dobson, senior economist at Markit, said: "An improvement in the UK manufacturing purchasing managers' index for the first time since May's 15-year high will provide reassurance that manufacturing remained a driver of UK economic growth at the start of the final quarter.

"Looking ahead, business confidence, private investment spending and exports will be important to sustaining the recovery as growth derived from the public sector and consumers is hit by austerity measures and rising job insecurity."