UK manufacturing saw fastest rate of growth for five months before Brexit vote
4th July 2016
The UK's manufacturing sector grew at its fastest rate for five months before last week's shock Brexit vote, according to a survey.
The Markit/CIPS Purchasing Managers' Index rose to 52.1 in June, its highest level since January and well above forecasts for 50.1, and well up from a reading of 50.4 in May.
However, the study was made between June 13 and June 27, with 99 per cent of the responses coming before it was revealed that Britain had opted to exit the European Union.
Shine on: UK manufacturing grew at the fastest rate for five months in June, but with most of the data collected before last week's shock Brexit vote victory, the improvement looks likely to be short-lived.
Rob Dobson, Senior Economist at Markit said: â€˜Whether this growth recovery can be sustained will depend heavily on whether the current financial and political volatility spills over to the real economy.
â€˜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.'
Markit 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.
The survey showed British manufacturing exports rose at their fastest pace in seven months. The study also 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 continue to dog the sector, with job losses reported for the sixth straight month.
Mike Rigby, Head of Manufacturing at Barclays, said: â€˜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.
â€˜That said, the manufacturing sector has shown great resilience in the past in the face of challenging market conditions and we should be confident it will continue to do so again.'
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 growth, while Bank of England governor Mark Carney yesterday signalled that, in his personal view, interest rates should be cut over the summer to give the UK economy a boost from any post-Brexit vote trauma.
The pound tumbled to a 31-year low against the dollar on Monday in the wake of the shock EU referendum result, and although it had recovered from that nadir later in the week, Mr Caney's comments sent it sharply lower again yesterday.
Today sterling was a touch weaker around lunchtime, down 0.1 per cent versus the dollar at $1.3287, and off 0.2 per cent against the euro at €1.1959.
Slower: Growth in China's manufacturing sector stalled in June, although that simply added to expectations that Beijing will have to roll out more stimulus measures soon to boost its sluggish economy
Howard Archer, chief UK and European economist at IHS Global, said: â€˜The sharp weakening of the pound will provide some help to UK exporters competing in foreign markets, although this will be at least partially offset if there is a significant hit to European growth in particular from the "Brexit vote".
â€˜The weaker pound will also push up manufacturers' prices for oil, commodities and imported inputs.'
Last week, ahead of the June 23 referendum, the CBI reported that British factory orders had hit a ten-month high in a sign that the economy had continued to grow in the face of apocalyptic warnings over the risks of Brexit.
The business body said that order books were at the highest level since August last year although demand from overseas for British-made goods remains subdued.
But Martin Beck, senior economic advisor to EY ITEM Club, added: â€˜It is likely that the makers will be hit by uncertainty over what the UK's future trading relationship with the EU will be.
â€˜That said, for a period possibly extending into several years, nothing fundamental is likely change in terms of market access. And the sizeable weakening in the pound since the EU referendum result should prove to be a net gain for the sector.
â€˜Only time will tell which of these competing forces will prevail.'
Meanwhile, business activity in the eurozone expanded at its fastest rate this year in June, although Britain's vote to quit the EU could cause it to slow in coming months.
The Markit PMI for the euro zone climbed to 52.8 from May's 51.5, higher than the earlier flash reading of 52.6.
Chris Williamson, chief economist at Markit, said: â€˜Given the uncertainty caused by the prospect of Brexit, it seems likely that business and consumer spending will be adversely affected across the euro area in the short term at least, pulling growth down in coming months.'
But growth in China's manufacturing sector stalled in June, according to an official survey also published today, although that simply added to expectations that Beijing will have to roll out more stimulus measures soon to boost its sluggish economy.
China's official Purchasing Managers' Index eased to a four month low of 50.0 in June, down from 50.1 in May, but in line with analysts' forecasts.
Share this article on social media: