UK manufacturing posted August revival

London – UK Domestic manufacturing witnessed a surprise post-Brexit boost last month, according to new figures published 1 Sept.

The seasonally adjusted Markit/CIPS Purchasing Managers’ Index (PMI) recovered sharply in August, from the 41-month low of 48.3 posted in July following the European Union (EU) referendum.

With a PMI of 53.3, August saw improvements in UK manufacturing output and incoming new orders. A score below 50 suggests contraction.

The month-on-month increase in the level of the headline PMI of five points was the joint-greatest in the survey’s history, Markit said.

Companies reported solid inflows of new work from both domestic and export sources, the latter aided by the sterling exchange rate.

Employment also rose for the first time in the year-to-date.

Manufacturing production increased at the fastest pace in seven months during August, an improvement on the contraction registered in the prior month, while improved sales volumes to markets such as the USA, Europe, China, South-East Asia, the Middle East and Norway led to a further increase in new export business during August.

Employment rose for the first time during the year-to-date, though only moderately. Job creation was seen at SMEs, but cuts were made at largescale producers.

IHS Markit senior economist Rob Dobson, said: “The August PMI data indicate a solid rebound in the performance of the UK manufacturing sector from the steep downturn that followed the EU referendum.

“Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual. The domestic market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business from the USA, Europe, Scandinavia, Middle East and Asia.

“Inflation is raising its ugly head, however. Rates of increase in input prices and output charges both hit five-year highs, which manufacturers placed squarely at the door of the cost impact of sterling on import prices. It is too early to say whether the rebounds in growth and inflation will be sustained, but the upturn in August suggests that the weaker exchange rate and recent policy action have helped to avert a downturn.”

Lee Hopley, chief economist at the EEF, the manufacturers’ organisation, said: “Manufacturers, unnerved in July by the referendum outcome, appear to have their mojo back in August. “Business has carried on as normal and the weaker exchange rate is providing support for exporters in a broad range of markets in fairly short order. However, as anticipated, the fall in sterling has also led to a rapid increase in input costs and the pass-through to inflation will surely follow.

“The data provides a lot of relief that manufacturing activity is still on the up. But the heightened volatility in the indicator in the last couple of months still raises questions about whether sentiment has overshot somewhat and, rather than this pace of expansion being sustained, some moderation is likely in the coming months.”

In contrast, growth in the eurozone manufacturing sector lost momentum in August. Rates of expansion slowed for production, new orders and new export business, resulting in weaker job creation.

The Markit Eurozone Manufacturing PMI posted 51.7 in August, a three-month low. Overall, companies reported slower increases in new business from domestic and export sources.