UK manufacturers enjoy best quarter this year following Brexit vote


Economists said the better-than-expected data strengthened the case for the Bank of England to keep interest rates on hold in November, as several upgraded their UK growth forecasts, reports The Telegraph.

Markit said the fall in the value of the pound following the Brexit vote was the manufacturing sector’s “prime growth engine” as new domestic and overseas orders and promotional deals boosted activity.

The survey compiler said growth was broad-based, while employment rose for the second straight month as companies took on new staff to cope with higher demand.

The Markit/CIPS manufacturing  Purchasing Managers’ Index (PMI) rose to 55.4 in September, from 52.1 in August.

This was well above the 50 level that signals growth, and its highest level since June 2014.

Economists expected the headline reading to moderate to 52.1 following a significant rebound in activity in August from July’s three-year low.

The survey compiler said the rebound in the headline PMI level since the Brexit vote was “sufficient to make the third quarter average of 52.3 the best during the year-to-date”.

Rob Dobson, senior economist at Markit, said the “strong” PMI reading suggested the sector was also on course to add to UK growth in the third quarter, further reducing the chance that the UK will fall into recession.

“The weak sterling exchange rate remained the prime growth engine, driving higher new orders from Asia, Europe, the USA and a number of emerging markets,” he said.

The positive survey data helped the pound to pare some of its losses against the dollar after falling close to a 31-year low early on Monday.

The value of sterling fell as low as $1.2834 against the greenback after Theresa May said she will begin the process of leaving the EU by next March and a survey of US manufacturers showed activity rose at a faster than expected pace in September.

This was close to the three decade low of $1.2798 following the Brexit vote.

The Prime Minister also fuelled speculation that the Government would take the UK out of the single market of goods and services, sending the value of sterling down further.

Sterling also fell to a three year low of €1.1433 against the euro.

The Chancellor has announced that the Government will spend more on housing and “targeted, high-value investment” in order to boost growth following the Brexit vote.

However, Philip Hammond has suggested that policymakers will continue to keep a lid on day-to-day spending.

Alan Clarke, an economist at Scotiabank, said recent upbeat UK data had “removed the urgency for the Chancellor to throw the kitchen sink at the economy in the Autumn Statement in November”.

It came as JP Morgan upgraded its forecast for UK growth for the second time in as many months. It now expects the UK economy to grow by 1.3 per cent in 2017, up from a forecast of 0.9 per cent last month.

While this remains much lower than its pre-referendum forecast, economists at JP Morgan said the stronger outlook for growth suggested the Bank of England “would not need to cut interest rates again this year”.

Fitch, the rating agency, also nudged up its forecasts for UK growth this year and next to 1.8 per cent and 1 per cent, from 1.7 per cent and 0.9 per cent respectively. It said further easing by the Bank this year was now “in doubt”.

IHS Global Insight upgraded its forecast for third quarter growth to 0.3 per cent on Monday, from 0.2 per cent quarter-on-quarter previously.

Bank of England policymakers currently expect official data to show growth of 0.2 per cent in the third quarter, which it expects to be revised up to 0.3pc as more data become available.

Financial markets believe there is just a 15pc chance of an interest rate cut in November, down from 40 per cent in August, after policymakers lowered rates to a fresh low of 0.25 per cent.

Minutes of the Bank’s latest Financial Policy Committee (FPC) meeting showed that, while near-term momentum of the UK economy appeared “slightly to the upside” compared with the Bank’s predictions in August, there were further signs of economic stress in the commercial property and overseas investment markets.

FPC members, including Governor Mark Carney noted that gross investment in UK commercial real estate in July and August was on average less than a third of the monthly foreign investment seen throughout 2015.

Overseas net purchases of FTSE 100 shares were around half the average monthly inflows seen in 2015, the FPC added.

A separate survey of eurozone manufacturing showed activity in the private sector accelerated in September amid a rise in new orders.

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said “solid gains” in the eurozone suggested there was “momentum building behind the manufacturing recovery in developed economies.

“While UK exporters have the added boost from the weaker exchange rate, it’s the prospect of brighter demand prospects that provides confidence that growth will hold up,” she said.