MANUFACTURING SECTOR SURGES AS WEAK POUND POST BREXIT BOOSTS EXPORTS
The UK’s manufacturing sector surged in September, growing at its fastest level since June 2014, a closely watched survey has indicated.
The Markit/CIPS purchasing managers’ index (PMI) for the sector rose to 55.4 in September from 53.4 in August. A figure above 50 indicates expansion.
The weakening of the pound following the Brexit vote had continued to boost exports, the survey found. But the weak pound had pushed up firms’ costs “at a double-digit annual rate”.
A weakening of the pound makes UK goods cheaper for overseas buyers, but increases the cost of goods imported into the UK.
Since the UK’s vote to leave the EU, the pound has fallen in value by more than 10% against both the US dollar and the euro.
“The weak sterling exchange rate remained the prime growth engine, driving higher new orders from Asia, Europe, the US and a number of emerging markets,” said IHS Markit senior economist Rob Dobson.
“The domestic market is also still supportive of growth, especially for consumer goods.”
Higher import costs as a result of the exchange rate had led to a further “substantial” increase in average purchase prices, with manufacturers passing on part of the rise to customers in the form of higher charges, the survey found.
However, the resultant inflation was now easing, said Mr Dobson. “It looks as if the recent surge in inflation may not quite reach the peaks of previous bouts such as in 2008 and 2010-11.”
Howard Archer, chief UK and European economist at IHS Global Insight, described the figures as “a serious and very welcome upward surprise” which was “undeniably encouraging”.
“The robust September manufacturing purchasing survey seemingly further dilutes the case for the Bank of England to cut interest rates again this year,” he added.
Lee Hopley, chief economist at the manufacturers’ organisation EEF, said it was an “expectation-busting surge in manufacturing activity” that pointed to conditions across industry being “considerably better than business-as-usual”.