Manufacturing output starts new year on ‘strong footing’

The plunge in the pound has been a key driver of the recent turnaround
The plunge in the pound has been a key driver of the recent turnaround

Output in Britain’s manufacturing industry has started the new year on a “strong footing” after unexpectedly leaping to a two-and-half-year high at the end of 2016.

The closely-watched Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) said output hit 56.1 in December, up from 53.6 in November and above economists’ expectations of 53.3.

A reading above 50 indicates growth.

The move was driven by the Brexit-hit pound, which continued to boost demand by making UK exports cheaper on the international market.

However, the double-edged sword of sterling’s slump means cost pressures are still high, the report said, with rates of inflation “remaining among the highest seen during the survey history”.

Rob Dobson, senior economist at IHS Markit, said the plunge in the pound had “undoubtedly been a key driver of the recent turnaround, while the domestic market has remained a strong contributor to new business wins”.

“The UK manufacturing sector starts 2017 on a strong footing. The headline PMI hit a two-and-a-half year high in December, with rates of expansion in output and new orders among the fastest seen during the survey’s 25-year history.

“Based on its historical relationship against official manufacturing output data, the survey is signalling a quarterly pace of growth approaching 1.5%, a surprisingly robust pace given the lacklustre start to the year and the uncertainty surrounding the EU referendum.”

The pound pushed into positive territory against the US dollar following the manufacturing update, rising 0.1% versus the greenback at 1.229.

Sterling was also 0.8% higher against the euro at 1.181.