UK manufacturing output pushes to four-month high

Sterling boost for exporters but costs rise too
Sterling boost for exporters but costs rise too

Output in Britain’s manufacturing industry unexpectedly pushed to a four-month high in August thanks to a jump in new work.

The closely-watched Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) showed a reading of 56.9 last month, up from 55.3 in July and above economists’ expectations of 55. A reading above 50 indicates growth.

The bright update for the UK economy gave a momentary boost to the pound, which edged into positive territory against the US dollar before slipping back to 1.292.

The PMI report said activity rose to its second-highest level in more than three years, as production picked up pace despite overseas demand for British goods easing from a near-record high in July.

Firms were also feeling more positive, with business confidence reaching a three month high on the back of new product launches and the stronger global economy.

Rob Dobson, director at IHS Markit, said the manufacturing sector was in “good health” despite concerns over Brexit, handing further evidence for policymakers calling for an interest rate hike.

He said: “The UK manufacturing sector continued to show signs of solid progress during the third quarter, with rates of expansion in output, new orders and employment all gathering pace in August.

“The key question is whether this positive start to the second half of the year can be sustained. This is looking increasingly likely during the near-term, given the breadth of the expansion.

“There are increasing signs of supply-side issues leading to raw material and staff shortages, which could become a constraint on output growth going forward, while also leading to higher costs.”

The Brexit-hit pound was pinpointed as key factor in attracting foreign buyers to British products, with firms seeing new export work from mainland Europe, USA, China and Australia.

However, sterling’s slump has proved a double-edged sword for manufacturers, fuelling demand by making British goods cheaper on global markets while raising import costs.

Nearly a third of companies saw a rise in purchase prices despite the overall rate tracking below record levels seen at the start of 2017.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The pick up in the PMI brings tentative hope that the recent decline in the official manufacturing output data will be reversed swiftly.