Monday, October 3, 2016
What Brexit? — Britain's manufacturing sector is going wild
Pool / Pool
Britain's manufacturing sector is going crazy, rising to a near-two and a half year high, according to the latest data released by IHS Markit on Monday morning.
IHS Markit's growth data shows that Britain's factories recorded activity of 55.4 in September, up a full two points from August's 53.4 reading, and marking a level not seen since June 2014. Forecasters had the projected that the sector would grow more slowly in the month, predicting a reading of 52.1.
The purchasing managers index (PMI) figures from IHS Markit are given as a number between 0 and 100.
Anything above 50 signals growth, while anything below means a contraction in activity — so the higher the number is, the better things look for the UK.
Speaking about the data, IHS Markit senior economist Rob Dobson 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.
"The weak sterling exchange rate remained the prime growth engine, driving higher new orders from Asia, Europe, the USA and a number of emerging markets. The domestic market is also still supportive of growth, especially for consumer goods."
David Noble, CEO of CIPS, which helps compile the survey, added:
"This month, manufacturing made up lost ground since the EU referendum, with a robust rise in new orders and production expanding at a pace not seen for over two years.
"It was largely domestic orders that fuelled the rise in overall activity, although the weaker pound also bolstered export orders which increased at the steepest rate for 32 months."
Here is IHS Markit's chart, showing the huge surge over the last two months:
The numbers are obviously good news for those worried about the state of the British economy in the post-referendum landscape, but should be taken with a pinch of salt given the boost to exports given by the weak pound, and the fact that manufacturing accounts for just under 10% of UK GDP. The services sector by contrast, makes up more than three-quarters of GDP.
As IHS Markit's release notes: "Conditions in the UK manufacturing sector continued to improve at the end of the third quarter. Rates of expansion in output and new orders accelerated further, rising at rates rarely achieved since the middle of 2014. The domestic market remained a prime driver of new business wins, while the weaker sterling exchange rate drove up new orders from abroad."
Earlier on Monday, eurozone manufacturing PMI data showed that the continent's manufacturers are enjoying strong growth right now. Markit's manufacturing PMI for the eurozone grew to 52.6 from 51.7 in September, matching the earlier flash estimate.
The pound moved marginally higher against the dollar on the news, but remains depressed on the day after Prime Minister Theresa May told the Conservative party conference that she plans to trigger Article 50 by the end of March next year: