India's manufacturing activity loses steam in October on GST bite

BOE Needs Messaging With a Rate Hike Says UBS's Yu

The report also noted that output growth slowed to the lowest in the current three-month period of rising production, saying that firms that witnessed an increase in output pegged this to stronger demand, while those that saw a decrease in output blamed the negative effects of GST.

The manufacturing sector performed better in October than expected, further increasing the likelihood of the Bank of England raising interest rates on Thursday.

The IHS Markit/CIPS UK manufacturing purchasing managers' index edged up to 56.3 after the previous month's PMI was revised up to 56.0 from 55.9, with the market's expecting a small fall to 55.8.

"The continued robust health of manufacturing and rising price pressures will help cement expectations of the Bank of England hiking interest rates for the first time in a decade". New export order growth, meanwhile, accelerated and was the strongest in six months.

Employment increased for the third consecutive month in October.

However, there were continued inflationary pressures in both input and output prices, with both reported to be rising at faster than historical average rates.

Alongside production growth at an eight-month high, new business orders rose at their fastest pace since March, IHS Markit said, while demand from overseas clients was described as "substantial". The expansion was broad-based by sub-sector, with consumer, intermediate and investment goods producers all registering output growth.

The government's decision to ban high value-currency notes last November, combined with the introduction of a new unified tax system, dampened consumer spending and industrial activity.

To support workloads, purchasing activity by manufacturers rose strongly in October, and input stocks increased at a joint-survey record pace. That said, their ability to fully pass on higher input costs was restricted due to competitive conditions.

Panellists linked subdued demand conditions to negative impacts of GST. This was also reflected in the trend in vendor performance during September, as lead times lengthened to the greatest extent since April 2011.

"India's manufacturing companies struggled somewhat as the recent recovery enjoyed by the sector lost impetus in October", Aashna Dodhia, economist, IHS Markit, and the report's author, wrote.

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