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UK manufacturing output at highest level since June 2014

Published 03/10/2016

The move means output hit its highest level since June 2014 in September
The move means output hit its highest level since June 2014 in September

Output in Britain's manufacturing sector reached its highest level for more than two years as the industry continued to bounce back from a post-Brexit vote slump.

The closely watched Markit/CIPS UK Manufacturing purchasing managers' index (PMI) said output hit 55.4 last month, up from 53.4 in August, and above economist expectations of 52.1.

A reading above 50 indicates growth.

The move means output hit its highest level since June 2014 in September and shows a marked improvement since it dropped to 48.3 in July, the first month after Britain voted to leave the European Union.

Rob Dobson, senior economist at IHS Markit, said: "The rebound over the past two months has been encouragingly strong, and puts the sector on course to provide a further positive contribution to GDP in the third quarter."

Conditions in the manufacturing sector brightened towards the end of the third quarter, with growth accelerating for output and new orders, the report said.

Output rose at its quickest in one-and-a-half years in the consumer goods sector, while manufacturing production saw its fastest expansion since May 2014.

New orders were also on the rise in domestic and overseas markets, with the fall in the value of the pound against the US dollar and the euro since the Brexit vote helping export sales to expand.

It said the level of incoming new export orders rose at its fastest pace since January 2014 amid a growing appetite for British products from America, Europe, Asia and some emerging markets.

"The weak sterling exchange rate remained the prime growth engine," Mr Dobson added.

"The domestic market is also still supportive of growth, especially for consumer goods. Further step-ups in growth of new business and output in the investment goods sector may also be a sign that capital spending is recovering from its early-year lull, in the short term at least."

September's performance means manufacturing output recorded a third-quarter average of 52.3 - its best reading for the year.

Employment levels in the industry also rose for the second month in a row despite falling earlier this year.

James Knightley, senior economist at ING, said the bounce back in manufacturing PMI "casts serious doubt" over the prospect of additional monetary policy easing from the Bank of England in November.

The pound pared losses to a fall of 0.6% against the US dollar at 1.288 US dollars following the PMI announcement.

Sterling also clawed back ground against the euro to drop 0.5% to 1.147 euros.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the manufacturing sector appeared to be showing "no adverse side-effects" from the EU referendum result.

However, he said: "We continue to think that manufacturers are vulnerable to a slowdown in consumer spending next year, when real household incomes will be squeezed by high inflation."

The latest official figures from the manufacturing sector saw output suffer a worse-than-expected drop in activity for July, as activity slipped by 0.9%.

But on Friday, Britain's powerhouse services sector, which accounts for more than three-quarters of the UK economy, defied expectations of a post-Brexit vote slump by expanding 0.4% in the first month after the EU referendum result.

It came on the same day that the Office for National Statistics (ONS) revised up its reading for the UK economy, with gross domestic product (GDP) growing 0.7% in the second quarter, up from a previous estimate of 0.6% for the period.

UK GDP grew by 0.4% in the first three months of the year.

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