May 2, 2017

Manufacturing industry output jumps to three-year high

Output in Britain's manufacturing industry jumped to a three-year high in April as new orders charged ahead on strong domestic and overseas demand.


The closely watched Markit/CIPS UK Manufacturing purchasing managers' index (PMI) showed a reading of 57.3 last month, up from a four-month low of 54.2 in March and above economists' expectations of 54.

A reading above 50 indicates growth.

Business confidence among British manufacturers was robust in April, with UK markets driving the strongest inflows of new work since January 2014.

The industry was also enjoying an exports boost from the Brexit-hit pound and the gathering strength of the global economy and the eurozone.

Rob Dobson, senior economist at IHS Markit, said the UK manufacturing sector had made a "solid start" to the second quarter.

"Growth of output, new orders and employment all gathered pace, driven higher by the continued strength of the domestic market.

"There was also a solid bounce in new export business, as the weak sterling exchange rate helped manufacturers take full advantage of the recent signs of revival in the global economy, and especially the eurozone, which is enjoying its best growth spell for six years."

The PMI report said all sub-components of the manufacturing sector picked up in April, with Brexit-induced cost pressures remaining at large despite easing to a nine-month low.

Sterling momentarily pushed higher against US dollar to 1.29 following the announcement, before paring gains to 1.288. The pound was down 0.1% versus the euro at 1.181.

"Although price pressures remain elevated, input cost inflation has eased significantly since hitting a record high in January," Mr Dobson added.

"The big question is whether this growth spurt can be maintained, especially given the backdrop of ongoing market volatility and a number of political headwinds such as elections at home and abroad.

"Other surges seen since the middle of last year have generally proved short-lived, as weak wage growth sapped consumer spending."

It comes after the UK economy endured a worse-than-expected slowdown in the first three months of the year as the services sector slackened and inflation took its toll on retailers.

The Office for National Statistics (ONS) said on Friday that gross domestic product (GDP) grew by 0.3% in its initial estimate for the first quarter of 2017, down from 0.7% in the fourth quarter of last year.

Economists had been expecting GDP growth to slow as consumers tightened their belts in the face of rising inflation, but they had pencilled in a higher growth figure of 0.4%.

Britain's powerhouse services sector, which accounts for 78% of the UK economy, put downward pressure on overall growth after expanding by 0.3% between January and March this year, slowing from 0.8% between October and December of 2016.

Production expanded by 0.3% over the period, with manufacturing increasing by 0.5% thanks to a jump in motor vehicle manufacturing.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the manufacturing industry's medium-term outlook was "clouded by Brexit risks" despite April's growth spurt.

"When the output prices balance has been this high in the past, growth in output usually has weakened over the following six months.

"In addition, other surveys suggest that manufacturers are investing less, despite the near-term strength of demand, due to uncertainty about post-Brexit trade ties.

"The recovery in the manufacturing sector, therefore, might quickly run into capacity constraints, ensuring that Britain doesn't capitalise on the lower pound."

Belfast Telegraph