UK Edition
Manufacturing accelerates on export boom as factories ramped up output in December at levels not seen since 2014
British factories ramped up output in December as strong export and domestic demand stimulated growth in the manufacturing sector, according to an influential private sector survey.
Sterling’s weakness since the referendum has made UK-produced goods more attractive internationally, helping the industry rebound from a spell of uncertainty following the Brexit vote.
The purchasing managers’ index (PMI) put together by IHS Markit hit 56.1, its highest level since mid-2014. Any index score of above 50 indicates the sector is expanding.
Economists at the group estimate that the strong PMI score implies the manufacturing sector grew by 1.5pc in the final quarter of 2016, in contrast to indications of a slowdown in the most recent official data which showed output fell in October.
“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,” said IHS Markit’s senior economist Rob Dobson.
“A plus point from the December survey was that the expansion was led by the investment and intermediate goods sectors, suggesting capital spending and corporate demand took the reins from the consumer in driving industrial growth forward.”
Extra demand is coming from the US, EU, India and China, according to respondents to the survey.
The weaker pound also affects those manufacturers’ costs, however, as they import some of the materials used in creating their products.
Companies’ purchase prices increased for the eighth consecutive month, though the pressures from the exchange rate are easing a little - the survey found 75pc of firms citing the exchange rate as a factor pushing up costs, down from 84pc in November and 90pc in October.
Manufacturing firms are also hiring more staff to meet the extra demand.
Employment levels increased at the fastest pace for 14 months, the survey found, with small firms in particular hiring enthusiastically.
Economists are hopeful that the healthy figures will provide support to the wider economy going into 2017.
Ruth Gregory at Capital Economics said the index “provides further evidence that the sector’s post-referendum weakness will prove short-lived”.
“We continue to think that GDP growth will become better balanced in the quarters ahead.”