‘Spectacular’ rebound for manufacturing sector after post-Brexit vote slump

The manufacturing sector defied expectations by returning to growth during August.
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The manufacturing sector defied expectations by returning to growth during August. Photo credit should read: David Jones/PA Wire - Credit: PA

The UK manufacturing sector has beaten expectations by rebounding from its post-Brexit vote slump to hit a 10-month high.

The closely-watched Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI), where any reading above 50 represents growth, registered 53.3 in August, up from 48.2 in July and above economists’ expectations of 49.

Manufacturing was left in the doldrums following Britain’s vote to leave the European Union, with July’s reading representing a 41-month low. But the sector rallied markedly in August, matching the highest month-on-month increase since the survey began nearly 25 years ago, with growth seen both in manufacturing output and incoming orders.

The slump in the value of the pound to 31-year lows following the EU referendum result has made British products cheaper, boosting export orders to a 26-month high, but was also an upturn in new business from the UK.

There was also a brighter picture for manufacturing recruitment as employment grew for the first time this year, albeit only marginally. The boost to jobs came from small and medium-sized manufacturers, with bigger firms trimming their workforces.

However, the fall in sterling proved a double-edged sword, as input price inflation hit a five-year high, with 44% of companies reporting an increase in purchasing costs.

The better-than-expected manufacturing PMI for August improves the prospects of the UK economy continuing to grow in the third quarter, contrary to fears Britain could slip back into technical recession (two consecutive quarters of contraction) by the end of the year.

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Official figures last week confirmed that the economy grew by 0.6% in the second quarter, up from 0.4% in the first three months of 2016.

However, analysts said it was too soon to judge the full impact of the Brexit vote on the economy.

Stephen Cooper, head of manufacturing at KPMG UK, said the August PMI results for manufacturing were “spectacular” but added: “One swallow does not a summer make, and as autumn progresses, we will see if this is a blip, or whether it’s the start of a long-term trend.”