UK manufacturing on strong footing leading into 2017

The activity levels in the UK's manufacturing sector reached a level that has not been seen for nearly two-and-a-half-years last month. The Markit / CIPS Purchasing Managers' Index (PMI) for the manufacturing sector rose to 56.1 in December, elevating from 53.6 the month previous. Any figure on the scale above the 50 mark indicates that the sector has expanded.

The devaluation of the pound helped orders from overseas and has allowed the sector to begin the year on a strong footing. In saying this, they have also admitted that cost pressures faced by firms still remains at high level.

Rob Dobson, a senior economist at IHS Markit said: "The UK manufacturing sector starts 2017 on a strong footing.

"Based on its historical relationship against official manufacturing output data, the survey is signalling a quarterly pace of growth approaching 1.5%, a surprisingly robust pace given the lacklustre start to the year and the uncertainty surrounding the EU referendum.

"The boost to competitiveness from the weak exchange rate has undoubtedly been a key driver of the recent turnaround, while the domestic market has remained a strong contributor to new business wins."

December's PMI reading was a 30 month high and was accompanied by the Markit / CIPS rates of growth for production and new orders being some of the best they have seen for nearly two-and-a-half years. PMI stated that they saw companies having 'stronger inflows of new work from both domestic and overseas clients, the latter aided by the boost to competitiveness from the weak sterling exchange rate'.

Sterling's valuation decreased against other currencies following the decision to leave the European Union, which allowed goods made by the UK companies to become cheaper for buyers from overseas.

However, the weaker pound has raised the price of imported goods, causing higher costs for many UK-based manufacturers. Price pressures remained elevated in December. Inflation for input costs and output charges have remained 'among the fastest seen during the survey history' according to PMI.

PMI also added that companies passed on the higher costs which saw selling costs rise for the eighth month in a row. Analysts have also predicted that these rising costs could lead to higher prices for consumers in the coming year which will push up inflation rates further.

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