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Manufacturing sector 'reached five-month high ahead of Brexit'

Published 01/07/2016

Britain's manufacturing industry stepped up to a five-month high
Britain's manufacturing industry stepped up to a five-month high

Britain's manufacturing industry stepped up to a five-month high and broke free of its "early year sluggishness" on the run up to Britain's vote to leave the European Union.

The closely-watched Markit/CIPS UK Manufacturing purchasing managers' index showed a reading of 52.1 for June, its highest level since January, as it climbed from a revised reading of 50.4 in May.

However, the study was made between June 13 and the 27, with 99% of the responses coming before it was revealed that Britain had opted to exit the EU.

It said the uptick in manufacturing production was driven by an acceleration in new work, while new orders rose at their fastest pace since last October as the domestic market continued to show strength.

Rob Dobson, Markit senior economist, said: "Whether this growth recovery can be sustained will depend heavily on whether the current financial and political volatility spills over to the real economy.

"While the Bank of England remains poised to act if needed and the UK's trading relationships are unchanged during the two-year negotiation period, there's a clear risk that ongoing uncertainty will have at least some short term impact on manufacturing during the coming quarters."

The study found that an increase in new work from overseas was triggered by higher sales from the US, mainland Europe, Russia and East Asia.

But despite the improvement, lower levels of employment continued to dog the sector, with job losses reported for the sixth straight month.

David Noble, group chief executive officer at the CIPS, said companies were " eager to improve efficiency, and control costs".

He said: "Uncertainty about the outcome of the referendum and recent indecision from clients placing new orders continued to take their toll on an already challenged industry."

The brighter picture for the UK manufacturing industry comes despite deep concerns about UK economic growth in the wake of the Brexit vote.

Economists have slashed their forecasts for UK gross domestic product (GDP), while the Bank of England governor Mark Carney signalled on Thursday that in his personal view interest rates should cut over the summer to help boost the UK economy.

IHS Global Insight downgraded its forecast for UK GDP in the moments after the referendum result was announced to 1.5% from 2% for 2016 and to 0.2% from 2.4% for 2017.

Mike Rigby, head of manufacturing at Barclays, said: "Encouraging as these pre-referendum figures are, the uncertainty that beset the manufacturing industry ahead of the EU referendum shows no sign of abating following last week's vote and will inevitably thwart important investment decisions needed to help boost growth.

"The short term effects for exporters may well be positive, as sterling depreciates, but the long term impact of trade agreements, labour supply and a slower economy will weigh heavy on the mind."

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