Growth defies Brexit prediction
BRITISH manufacturing grew at its fastest pace in two and a half years last month, adding to signs that the economy ended 2016 strongly despite the shock of June’s Brexit vote, a survey showed yesterday.
The Markit/CIPS UK Manufacturing Purchasing Managers Index (PMI) rose to 56.1, the strongest reading since June 2014, from 53.6 in November, helped by orders from home and abroad.
That exceeded all forecasts in a Reuters poll of economists which pointed to a slowdown to 53.1, and boosted sterling to a two-week high against the euro.
Britain’s economy has fared much better than predicted since Brexit.
But the manufacturing PMI showed rising cost pressures on factories, something that is likely to feed increasingly into consumer prices.
Survey compiler IHS Markit said the manufacturing output appeared to be rising at a strong quarterly pace of around 1.5 % , with orders boosted by sterling’s plunge after the Brexit vote.
IHS Markit’s euro zone PMIs showed manufacturing growth there hit a more than five-year high, similarly boosted by an influx of new orders.
But analysts were wary about the outlook for 2017 and said official data for British manufacturing had been weaker than the PMI surveys suggested.
“UK manufacturing is benefiting from both continued brisk growth in domestic demand as well as improving global demand, but this momentum likely will peter out in 2017,” economist at Pantheon Macro economic Samuel Tombs said.
Senior economist at IHS Markit Rob Dobson said higher factory costs were the downside of the pound’s fall which left it down around 10% on a trade-weighted basis since June.
“Of the companies citing a cause of higher costs, 75% linked the increase to the exchange rate,” Dobson said.
Trade credit insurer Euler Hermes warned manufacturers were nervous about rising input costs that were putting pressure on companies’ cash flow.
The Bank of England is also watching inflation pressures closely.
Although it is willing to tolerate some overshoot of its 2% inflation target while the pound’s fall since last year feeds through into prices, it has warned there are limits.
Britain’s economy looks on track to expand by more than 2% in 2017 – faster than almost all other big advanced economies except perhaps the US. — Reuters