United Kingdom manufacturers report 'solid rebound' in August
Sep 02 2016 by Johnny Bowman
"There is also the likelihood that consumers will become less able (due to diminishing purchasing power) and more reluctant and to buy big ticket consumer durable items over the coming months".
10-month highs and the pound is spiking sharply.
That was the joint greatest month-to-month jump in the survey's almost 25-year history. The gains in the indices tracking output and new orders were similarly among the steepest on record.
The update follows a surprise swing in manufacturing output in August, notching up its highest monthly rise in a quarter of a century.
This is the highest print since October 2015 and it is evident that the weak GBP is helping to shore up foreign demand for United Kingdom exports, with the survey showing a surge in the export orders sub-index to 54.9, its highest since June 2014, from 51.4 in July.
Companies cited strong competition for new work, as well as subdued demand conditions. Export orders increased at the fastest pace for 26 months with Sterling depreciation an important support factor, although notably there was little evidence of stronger growth in Euro-zone export orders.
The composition of the official measure of producer input price inflation has already shifted, and is now being driven by the cost of imported goods.
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Some companies chose to pass on their higher costs to clients, raising their prices and leading to mild inflation in overall sales prices in the manufacturing sector.
The weak pound makes United Kingdom goods and services cheaper for overseas buyers, increasing the cost of imports. Markit said the fall in the value of the pound triggered by the referendum result had helped to push up overseas orders, while domestic output also bounced back and employment rose for the first time this year. The currency has lost nearly 11 percent against the dollar since the June 23 referendum.
United States stocks climbed and the dollar went into reverse after the weak USA jobs creation data pushed out expectations for an increase in U.S. interest rates to towards the end of the year.
That followed a warning from Bank governor Mark Carney before the referendum that a vote to leave could tip the United Kingdom into recession.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said the manufacturing data adds to a picture of improved sentiment since the fallout of the referendum result.
"Manufacturers, unnerved in July by the referendum outcome, appear to have their mojo back in August", she said.
Next week, another PMI survey, of the much larger services sector, will provide another snapshot of the state of the United Kingdom economy.