Eurozone’s manufacturing boom leaves UK in the shade

MANUFACTURERS in the eurozone enjoyed strong growth last month, strengthening the EU’S bargaining hand in Brexit trade negotiations.

IHS Markit’s composite purchasing managers index (PMI), a closely watched barometer of economic health, rose to a four-month high of 56.7 in September.

Any reading above 50 indicates growth in a sector.

France and Germany led the charge, with German manufacturers’ PMI rising to 57.8 in September from 55.8 in August. Economists had been expecting a small fall to 55.6.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, attributed the eurozone’s momentum to strong order books.

“Output and new orders are rising briskly,” he said. “Meanwhile, private sector activity in both services and manufacturing remain strong enough to increase work backlogs and increase employment.”

As the European Central Bank looks to cease its bond-buying activities, these figures could make the ending of its quantitative easing programme even more likely.

“The rise in business activity and accompanying build-up of price pressures will fuel expectations that the ECB is poised to announce its intention to rein back some of its stimulus, reducing its asset purchases in 2018,” said Chris Williamson, the chief business economist at IHS Markit.

At the same time, the Confederation of British Industry’s industrial trends survey showed UK manufacturers’ growth slowing a little, with 24pc of companies reporting stronger than usual order levels and 17pc reporting weaker orders. That gives a net balance of 7pc, down from 13pc last month and below the 11pc expected level.

Export demand did hold up more firmly, however, indicating that strong economic growth overseas is helping British companies to grow.

“The outlook for manufacturing appears mixed with a promising export environment countered by challenging-looking domestic conditions. On the export side, a very competitive pound and healthy global demand should buoy UK manufacturers competing in foreign markets. The weakened pound could also encourage some companies to switch to domestic sources for supplies, which would help manufacturers of intermediate products,” said economist Howard Archer at the EY Item Club.

He added: “On the domestic front, increased prices for capital goods and big-ticket consumer durable goods, weakened consumer purchasing power, and economic and political uncertainty threaten to hamper manufacturers. Businesses’ willingness to invest and buy capital goods is being tested by economic, political and Brexit uncertainties.”