UK factory activity grows in September at fastest rate since June 2014 – PMI

Workers assemble cars at the plant for the Mini range of cars in Cowley, near Oxford, Britain June 20, 2016. REUTERS/Leon Neal/Pool

British factory activity grew at the fastest rate in more than two years last month, boosted by a surge in export orders after sterling slumped following June’s referendum vote to leave the European Union, a survey showed on Monday.

The Markit/CIPS Purchasing Managers’ Index (PMI) for the manufacturing sector reached its highest level since June 2014 in September, rising to 55.4 in September from 53.4 in August as it continued to rebound form July’s three-year low.

After official data on Friday showed services output grew far more strongly than expected in July, Monday’s figures will increase doubts about whether the Bank of England will go ahead with a second rate cut this year in November.

“The rebound over the past two months has been encouragingly strong, and puts the sector on course to provide a further positive contribution to GDP in the third quarter,” said Rob Dobson, an economist at Markit, which compiles the survey.

September’s factory PMI exceeds all forecasts in a Reuters poll of 28 economists, and suggests manufacturing growth in the third quarter will be the strongest so far this year.

The positive data for manufacturing, which accounts for 10 percent of Britain’s economy, adds to several surveys showing the initial shock from the Brexit vote was more short-lived than most economists had predicted.

Consumer goods producers did best – reflecting continued strong demand from households – while export orders rose at the fastest rate since January 2014, as sterling weakness boosted demand from Asia, Europe and the United States.

Demand for investment goods also rose, which Markit said suggested at least a temporary pick-up in businesses’ investment intentions after a lull since the start of the year which some surveys suggested had intensified since the Brexit vote.

The flip side of the weak currency is inflation. Although price rises slowed slightly from the five-year high chalked up in August, Dobson said factories’ raw material costs were still rising at double-digit rates, and that they were passing this on to consumers.

The BoE has forecast inflation will rebound to exceed its 2 percent target next year, and Monday’s figures will increase doubts about whether the central bank will repeat August’s rate cut at its next meeting in November.

But despite the positive message from the PMI, manufacturers’ longer-term commitment to Britain after it leaves the European Union looks in doubt.

Japanese carmaker Nissan said on Thursday it wanted Britain to compensate it for any tariff barriers resulting from the decision to leave the EU if it was to maintain plans to invest in its factory in Sunderland, in northeast England.

On Friday, Jaguar Land Rover told Reuters other auto manufacturers would need a level playing field if Nissan received assistance.

The government has not made clear how it would balance access to EU markets with limiting migration. Trade minister Liam Fox said on Thursday that trade with the European Union should be “at least as free” as it was now.

[Source:- Reuters]