Manufacturing activity grew at its fastest pace since the middle of 2014 last month, outstripping City of London analysts’ expectations and adding to the impression that the sector has recovered from a severe initial post-Brexit vote hit.
The latest Markit/CIPS Purchasing Managers’ Index reading jumped to 55.4 in September, up from 53.3 in August, with any figure above 50 showing expansion.
The reading was the strongest since June 2014.
The consensus of City analysts had been for activity to moderate to 52.1.
The manufacturing index had plummeted to 48.2 in July, immediately after the June referendum.
But it surged the following month, helped by a jump in export orders on the back of the 10 per cent depreciation of sterling against the euro and the dollar in the immediate wake of the vote.
Brexit vote shrugged off
David Noble of the Chartered Institute of Procurement & Supply (CIPS) said September’s rise in activity was mainly fuelled by large domestic orders, although export orders did increase again.
Rob Dobson of IHS Markit said the sector’s performance since August had been “encouragingly strong”.
According to the Office for National Statistics manufacturing ouput grew by 1.6 per cent in the three months to June, contributing just under a third of the 0.7 per cent GDP growth in the period.
Dobson said manufacturing was now on course to make a further positive contribution to GDP growth in the third quarter of the year.
Nevertheless, the level of manufacturing output still remains 4.6 per cent below where it was in the first quarter of 2008.
Services output, by contrast is more than 11 per cent higher.
Still not recovered
Some analysts have said that the strong economic data since the referendum is diminishing the likelihood of the Bank of England cutting interest rates again later this year, following August’s reduction in the cost of borrowing to 0.25 per cent.
James Knightley of ING stressed the PMI survey for services in September on Wednesday would be important. The City consensus is for the reading to weaken slightly from 52.9 in August to 52.
“If the service PMI does indeed improve then it is looking as though the BoE will hold off until the new year and it will be up to Chancellor Philip Hammond to provide some medium to longer term fiscal support in November,” he said.
What experts have said about Brexit
What experts have said about Brexit
1/11 Chancellor of the Exchequer Philip Hammond
The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”
2/11 Yanis Varoufakis
Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”
3/11 Michael O’Leary
Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”
4/11 Tim Martin
JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"
5/11 Mark Carney
Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”
6/11 Christine Lagarde
IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”
7/11 Inga Beale
Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”
8/11 Colm Kelleher
President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”
9/11 Richard Branson
Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"
10/11 Barack Obama
US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"
11/11 Kristin Forbes
American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”
Despite the signs that the economy has avoided entering another recession, the Chancellor is still widely expected to announce some form of infrastructure spending stimulus for the UK in the Autumn Statement on 23 November.
Services account for almost 80 per cent of the UK economy, with manufacturing covering a 10 per cent share.Reuse content