Brexit latest: Manufacturing slows unexpectedly in November

The latest Purchasing Managers’ Index showed a reading of 53.4 for last month while City of London analysts had expected it to strengthen to 54.5

Ben Chu
Thursday 01 December 2016 10:41
Manufacturing output contracted by 0.9 per cent in the third quarter of 2016
Manufacturing output contracted by 0.9 per cent in the third quarter of 2016

Manufacturing activity cooled in November according to the latest survey snapshot of the sector.

The latest Purchasing Managers’ Index, produced by Markit/CIPS, showed a reading of 53.4 for last month.

This was still comfortably above the 50 point that signals expansion, but lower than October's 54.2 reading.

City of London analysts had expected it to strengthen to 54.5.

The much-watched indicator plummeted into contraction territory immediately after the June referendum vote, contributing to fears of a recession, but then bounced back powerfully.

It has now slipped back for two successive months.

Cooling down?

There were also continued signs of growing manufacturing cost pressures due to the plunge in the UK exchange rate since the Brexit vote.

Markit reported that average purchase prices rose “at a pace close to October’s near six-year record again at one of the fastest rates in the survey history”.

It also reported “strong inflation of input costs and factory gate prices”.

The Bank of England and other forecasters expect such pressures to feed into consumer price inflation next year, pushing the cost of living rapidly above the Bank’s 2 per cent official target and squeezeing real incomes.

This, in turn, is expected to dampen household spending and slow the economy.

Official figures show manufacturing output fell by 0.9 per cent in the third quarter of the year, while the overall economy grew by 0.5 per cent.

Analysts, however, said the latest survey figures, while lower than expected, still painted a brightening picture for the sector.

“Despite the fall in the headline PMI the balance remained above its Q3 average of 52.4. This suggests that the manufacturing sector should experience a bit of a bounceback in Q4,” said Scott Bowman of Capital Economics.

“While manufacturing activity lost some momentum after solid post-referendum gains in the previous months, this doesn’t change the picture of improving fundamentals across manufacturing sub-sectors over the course of the year,” said George Nikolaidis of the EEF manufacturers’ organisation.

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