UK export grows with further rise in manufacturing
There has been a notable turnaround in Britain’s manufacturing sector — which accounts for around 10 per cent of the economy — and consequently a sharp rise in export with the sector benefiting from the weaker pound as its goods become more competitive overseas. A poll of manufacturers showed the overall health of the sector was better than expected, but firms predicted the prices they pay for materials will rise over the next year.
One-fifth of businesses said their orders were running at “above normal” levels, while 27 per cent said they were below average.
The manufacturing purchasing managers’ index (PMI), which is closely watched by policymakers at the Bank of England (BoE), had dropped to 48.3 in July, from 52.4 in the previous month.
That was even lower than a flash estimate had indicated in mid-July and it marked the index’s lowest reading since February 2013 where scores below 50 indicate contraction.
But encouragingly the PMI index rose to a healthy 53.3 in August, its highest reading in ten months and above rivals including major manufacturing countries such as France and Italy.
The five point increase in the index matched the previous record set in April 2009, the month after the BoE cut interest rates to 0.5 per cent and the drawn out recovery from the last recession began. Meanwhile, exports rose at the fastest pace for 26 months in August, which was driven by the dramatic fall in the value of the pound since the June referendum.
Head of manufacturing at KPMG in the UK, Stephen Cooper, said: “The results are spectacular for UK manufacturing. The fall in the value of sterling has had a marked impact on export orders.”
Adding to that was senior analyst at Hargreaves Lansdown, Laith Khalaf: “The sharp improvement in sentiment does cast some doubt over whether the BoE needed to cut interest rates at the beginning of August, though no doubt the central bank would claim its stimulus package is partly responsible for the rebound in confidence.”
Output growth in September held steady on the previous month’s level, with a net balance of 11 per cent of firms reporting an expansion.
The outlook for the future has improved sharply, however, with a balance of 22 per cent anticipating growth in the coming three months — up from 11 per cent in August and 6 per cent in July, pushing growth hopes back to the levels seen in the months before the referendum.
Chief economist at Confederation of British Industry (CBI), Rain Newton-Smith, said: “It’s good to see that manufacturers are enjoying a lingering summer with output running at a strong pace and manufacturers’ order books remaining solid, particularly among the food, drinks and motor vehicles sectors.”
She added: “Our members tell us, and our surveys show, that the fall in sterling has boosted international competitiveness for many businesses, with export order books remaining well above average in September.”
However, Newton-Smith admitted that there were “plenty of challenges ahead” as exit negotiations with the rest of the EU get under way.“We want to see a focus on promoting investment and innovation in the Autumn Statement (from the chancellor) to ensure makers are able to put their best foot forward and adjust to new opportunities.”
UK car manufacturers too are enjoying an export boom with foreign demand for British cars pushing automotive manufacturing to its best August for 14 years.
Britain’s car plants produced 109,004 new cars last month, a 9.1 per cent increase from the previous year, with the majority of cars destined for overseas. In the past 12 months, 1.13 million vehicles have been made in the country, up 12 per cent from the previous year.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, which collated the figures, said they were “welcome news for the UK economy”. He said: “British car producers are exporting a diverse range of highquality, attractive new models that are in demand across the world.”
Of the cars rolling out of British factories in August, 27,804 were for UK sale, a 6.2 per cent increase, while 81,200 were manufactured to be exported, up 10.2 per cent compared with August 2015. The industry, which employs around 800,000 workers, has called on the government to negotiate tariff-free imports and exports of cars after Brexit.