UK manufacturing bounces back

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UK manufacturing rebounded strongly in August, with the amount of activity increasing significantly compared to July.

Activity had experienced a slight downturn in July following the Brexit vote at the end of June, but increasing confidence among manufacturers and reassurances from the government had a major effect in August.

The Markit/CIPS purchasing managers' index (PMI), which gauges fluctuations in the amount of manufacturing activity, stood at 53.3 in August, in comparison to 48.3 in July; any figure above 50 indicates expansion.

Strong rebound

It represents a 10-month high and is the biggest rebound in the 25-year history of the survey, as manufacturers began to readjust their goals and expectations.

Appetite from overseas buyers has remained high and has fed into the domestic market, while rising employment has also helped to spur activity.

The publication of the data had an immediate effect on the value of the pound, with markets responding strongly. Many analysts pointed out that the current economic situation has also meant that exchange rates are more positive from a trade perspective.

David Noble, group chief executive officer at CIPS, declared that “the Brexit brakes are off”, with rapid expansions in both activity and new orders.

He added: “Fuelled by a combination of export and domestic orders, the increase in the level of the headline PMI equalled its best during the survey’s quarter of a century history.

“With exchange rates supporting more orders overseas, the counter effect of a lower pound meant that purchasing costs were higher, which was reported by 44 per cent of procurement managers.”

He added that an increase in stock building could signal more positive hope for the coming months, with all eyes now on whether the strong post-Brexit performance will continue.

Continued growth

Other analysts supported the sentiments, with Paul Hollingsworth, UK economist at Capital Economics, saying the figures add to evidence that the manufacturing sector is recovering well from the “initial shock” of the referendum outcome.

Mr Hollingsworth predicted that the economy is set for a period of slower growth, but certainly not the full-blown recession that some of the more pessimistic analysis had predicted pre- and post-Brexit.

The next major factor is likely to be the Bank of England’s decision on the base rate, which will be made on September 15. After cutting interest rates to their lowest level ever in August, the Monetary Policy Committee has not ruled out further measures being introduced.

An additional reduction in the base rate would be good news for homeowners with tracker or standard variable rate mortgages, and comes after figures from Nationwide revealed an uptick in house prices in August.

After rising by 0.5 per cent in July, further growth of 0.6 per cent was witnessed in August, taking the annual rate of price growth rose to 5.6 per cent.

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