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Promising UK Data Greet Carney on First Day

Kiran Moodley
Monday, 1 Jul 2013 | 9:12 AM ET
Mark Carney, governor of the Bank of England, is all smiles on first day in charge.
Jason Alden | Pool | Bloomberg | Getty Images
Mark Carney, governor of the Bank of England, is all smiles on first day in charge.

Strong U.K. manufacturing and mortgage data signaled an improving British economy, coincidentally on the same day the Bank of England welcomed its new governor, Mark Carney.

Figures released by Markit and the Chartered Institute for Purchasing and Supply (CIPS) showed that levels of production and new business rose in the second quarter of 2013 at the fastest rates since April 2011 and February 2011.

The report stated that domestic market conditions were continuing to improve and there still remained strong demand from overseas.

(Read More: Is It Bananas to Bring Mark Carney to UK Markets?)

Commenting on the figures, David Noble, CEO of CIPS, said: "Momentum is building in manufacturing as the sector begins to work up a head of steam. The two-year high in new business growth will do much to reassure firms we are on track for a recovery."

The monthly purchasing managers' index (PMI) for the sector rose to 52.5 in June, up from 51.5 in May.

The good news from the manufacturing sector was met with an improving picture in the mortgage space, with the Bank of England announcing that the number of loan approvals for house purchases reached 58,242 in May, up from 54,354 in April, and the highest monthly figure since December 2009. That's a 41-month high.

(Read More: UK Bank Business 'Normal' for First Time Since March 2011)

Howard Archer, chief U.K. and European economist at IHS Global Insight, said he would stick to his view that house prices will see solid but limited increases this year, with further strengthening in 2014. But, he added, there was still sufficient risk in the housing market.

"There is a growing possibility that with market activity now showing signs of picking up appreciable momentum, house prices could surprise on the upside over the second half of 2013, especially as a shortage of new properties for sale is currently providing support to house prices in some areas."

He also argued that housing market activity, while at a 41-month high, still lagged behind long-term figures. The 58,242 mortgage approvals in May this year is still below the average monthly level of 85,005 seen since 1983.

(ReadMore: Carney Takes Bank of England Reins Amid Bond 'Carnage')

While CIPS's Noble believes the U.K economy was improving, he pointed out the employment data were disappointing.

"Employment is the one disappointing spot, showing little change from last month; a reminder of the anxiety that still exists in the sector," he said. "The swell in order books and increased levels of purchasing activity however, signal that the subdued labor market trend may be short lived."

Samuel Tombs, U.K. economist at Capital Economics, said the U.K. economic recovery was gaining pace. "But it will take a few more months of improving data to suggest that the recovery is becoming entrenched," he added.

Carney, the first non-British governor of the Bank of England, will vote in his first policy meeting on Thursday, with many wondering wondering whether the central bank will expand its monetary stimulus this month.

"Despite the recent improvement in the economic data,there is still a strong case for the new Governor Mark Carney to give the economy additional support in order to boost the chances of the recovery becoming entrenched," Tombs said.

"He might even announce something at his first meeting this Thursday, although we think it more likely that he waits until August's meeting to announce forward guidance and possibly more quantitative easing."

Contact Europe: Economy

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