Continuing growth in UK manufacturing looks to be sustainable
04 September 2017
There was more encouraging news for the UK’s manufacturing sector last month after the Markit/CIPS purchasing managers’ index (PMI) indicated an acceleration in growth from 55.3 in July to 56.9 in August. With 50 indicating expansion, the survey watches output, orders and employment, among other things.
Last month’s reading was the highest in three years, with production increasing at its fastest pace for seven months. This was helped by a pickup in orders and though a major source of these orders is domestic, Rob Dobson from Markit indicated that overseas orders remain ‘robust’.
Again the recent weakness in the pound has been accredited as helping to push up overseas demand, but it has also been again pointed out that this has raised the cost of imports. Strikingly, a third of companies consulted said that the prices of imported goods as part of their supply chains have gone up; the survey has indicated that this is largely to do with rising commodity costs.
Promisingly, this growth is being described as likely to be sustainable, despite fears associated with Brexit. This is due to the ‘breadth of the expansion’ coming from both small and larger companies.
Dobson is quoted by the BBC as saying:
"The survey data suggest that the manufacturing economy remains in good health despite Brexit uncertainty, and should help support on-going growth in the economy in the third quarter, which will add fuel to hawkish policymakers' calls for higher interest rates."
However, other economists have claimed that the UK’s manufacturing sector should be doing even better, given the weakness of the pound and the recent strengthening of the Eurozone. Why the UK’s exports haven’t picked up following the depreciation in the value of the pound remains a significant concern for the government and one we at the Institute are always keen to press.