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Output stable as declining sterling drives exports surge

By Ben Woods

Published 02/11/2016

Impact: Rob Dobson of IHS Markit
Impact: Rob Dobson of IHS Markit

Manufacturing output remained "on a firm footing" last month as the plunging pound boosted exports, but caused costs to rise at their fastest pace for nearly 25 years.

The closely watched Markit/CIPS UK Manufacturing purchasing managers' index (PMI) said output hit 54.3 in October, down from 55.5 in September, and below economists' expectations of 54.4.

A reading above 50 indicates growth.

Despite easing back from September's two-year high, output was still well above the long-running average of 51.5.

The PMI report said sterling's slump since the Brexit vote had helped manufacturers rake in more export orders from America, China and the EU.

However, it added that the currency weakness had also ramped up import prices and the cost of products linked to dollar-denominated commodities such as oil.

Rob Dobson, senior economist at IHS Markit, said: "The UK manufacturing sector remained on a firm footing in October and should return to growth in the fourth quarter.

"The main topic of the latest PMI survey was, however, the impact of the sterling depreciation on manufacturers.

"On the positive side, the boost to competitiveness drove new export order inflows higher, providing a key support to output volumes.

"The downside of the weaker currency is becoming increasingly evident, however, with increased import prices leading to one of the steepest rises in purchasing costs in the near 25-year survey history.

"Around 90% of companies offering a reason for increased costs made some reference to the sterling exchange rate."

The report underscored the manufacturing sector's resilience to the rising uncertainty since Britain voted to leave the EU, with new order volumes rising for the third consecutive month.

However, purchase price inflation rose to a near six-year high - reaching its fourth highest level since the survey launched in 1992 - following higher costs for energy, metals and pork.

Belfast Telegraph

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