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Eurozone Factories Show Greater Signs of Life, Prices Hike


Factories in Europe are having the best month they’ve had all year.

Activity and new business in factories across Europe picked up in October, rising at the strongest rates since January, according to IHS Markit’s Purchasing Manager’s Index (PMI).

The PMI for the EU’s manufacturing sector came in at 54.5, above the 50 mark that divides contraction from expansion.

After a contraction in July linked to Brexit, the greater growth signals that the EU referendum has had little adverse effect on the manufacturing sector.

The growth, according to Markit, was driven by a stronger expansion of incoming new business—which rose at the fastest rate in nine months. Business sentiment is also on the upswing, and companies are spending more on marketing, investments and new products.

Business activity in the country is growing at a rate consistent with overall economic growth of 0.4% to 0.5%, according to Markit, and growth is becoming more balanced.

A weak pound, however, intensified cost pressures and that, coupled with higher input prices, led manufacturers to increase their prices at the fastest rate since April 2011.

“Manufacturing is leading the expansion as exporters benefit from the weaker pound,” Markit chief business economist Chris Williamson said. “The ugly flip-side of the weaker pound is clearly evident, however, with the rate of increase of service providers’ costs showing the largest monthly acceleration seen in 20 years of survey data collection.”

If sustained, the price increases could threaten hiring and consumer spending as companies look to cut staff and households see their paychecks shrinking, Williamson explained.

“Given the faster growth of both business activity and prices, it’s hard to see how the Bank of England would consider any further stimulus appropriate, though policymakers will most likely want to stand ready to act if the UK’s path to Brexit leads to an escalation of economic uncertainty,” Williamson said.