UK manufacturing hit a four-month high in August

Sme manufacturing

The UK’s manufacturing industry smashed expectations in August, after data showed growth in the sector jumped to a four-month high.

Markit’s purchasing managers’ index (PMI) for the sector rose to 56.9, up from 55.1 in July, and against expectations of a fall to 55. Any number above 50 suggests growth in the sector’s output, reports CityAM.

The data showed production rose at its steepest pace in seven months, with growth in output, new orders, employment, suppliers’ delivery times and stocks of purchases. Growth in new export business and new work were both “robust”, Markit said.

However, the pound barely reacted to the news, making a brief gain against the dollar before falling back to $1.2928, while it barely managed a 0.1 per cent gain against the euro, edging up to €1.0866.

“The key question is whether this positive start to the second half of the year can be sustained,” said Rob Dobson, director at IHS Markit.

“This is looking increasingly likely during the near-term, given the breadth of the expansion. Business conditions improved across the three main subsectors – consumer, intermediate and investment goods – and at smaller and large-scale producers alike. Business confidence also rose to one of its highest levels in over a year.” But he cautioned that shortages of raw materials and staff could hamper growth in the sector.

“However, at the moment, the survey data suggest that the manufacturing economy remains in good health despite Brexit uncertainty, and should help support on-going growth in the economy in the third quarter, which will add fuel to hawkish policymakers’ calls for higher interest rates,” he added.

But Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, suggested Brexit could begin to stymie growth.

“Data during the month showed that the UK’s trade deficit has widened and that we are becoming more, not less, reliant on exporting to the EU. Add to that the fact that the pound remains weak versus major currencies, making imports pricier, along with uncertainty over future trade deals and the result is some underlying nervousness among manufacturers.

“Against this background, businesses are paying close attention to their working capital as they look to manage and mitigate these risks. Sterling’s weakness has created some accidental exporters who are finding their goods more competitive overseas and sub-sectors like food and drink and aerospace are performing strongly.”