Is this the end of Brexit fears? According to a survey of the UK manufacturing industry, the sector is now growing at its fastest level since 2014.
In the weeks after the EU referendum, UK manufacturing output appeared to crash. But it didn’t last for long, and according to the latest purchasing managers index, or PMI, tracking UK manufacturing, the industry is now growing at its fastest rate since 2014.
The manufacturing PMI is calculated by asking purchasing managers if output rose or fell over a certain period of time. If more than half record a fall, the index drops below 50. If more than half record a rise, the index gets a reading above 50. In July the index suffered its biggest monthly fall ever recorded, dropping to 48.2, from 52.4 the month before. That precipitous drop spooked the markets, sent the pound tumbling and seemed to support the worst-case predictions of the Remain camp.
But then a month later, fear had turned to hope. The PMI jumped to 53.4 the biggest monthly rise ever recorded. Well, a month on, and the index is up to 55.4, the fall in sterling seems to have been the main driver of the rise in the index.
Rob Dobson, Senior Economist at IHS Markit, which compiles the survey, said “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. The domestic market is also still supportive of growth, especially for consumer goods. Further step-ups in growth of new business and output in the investment goods sector may also be a sign that capital spending is recovering from its early year lull, in the short term at least."
Scott Bowman, UK Economist, at Capital Economics, said: "On the basis of past form, this points to quarterly growth in the official measure of manufacturing output of around 0.5% in Q3 – well down on Q2’s 1.6% rise, but a strong result in light of the uncertainty created by the referendum result.”
Samuel Tombs, Chief UK Economist at Pantheon Economics was less upbeat. He said: "We continue to think that manufacturers are vulnerable to a slowdown in consumer spending next year when real household incomes will be squeezed by high inflation. But for now, the manufacturing sector appears to be showing no adverse side-effects from the referendum.”