Economic cheer in short supply after UK manufacturing runs out of steam

● Economists point to limited consumer purchasing power and fragile confidence

Britain’s manufacturing sector gathered pace last month but is unlikely to make any significant contribution to economic growth in the final quarter of 2018 amid global trade tensions and Brexit uncertainty.

The closely monitored IHS Markit/cips purchasing managers’ index (PMI) for the sector showed a reading of 53.1 for November, higher than the 51.1 recorded in October, figures yesterday revealed.

Any result above 50 denotes growth and the November figure beat economists’ expectations for a reading of just 51.6. However, growth was among the lowest recorded in the past two and a half years.

The latest snapshot, which came ahead of surveys for the construction and service sectors, showed that growth in new orders came primarily from the UK domestic market with new product launches and companies stockpiling ahead of Brexit.

Orders from overseas dropped for the second consecutive month in November, which IHS said was the first back-to-back contraction since early 2016 as Brexit uncertainties took a toll on business.

Rob Dobson, director at IHS Markit said: “The November PMI provided a lacklustre picture of the UK manufacturing sector, as ongoing global trade tensions and Brexit uncertainty weighed on current business conditions and dampened the outlook for the year ahead.” He said the survey suggested that manufacturing output was on course to make “no contribution to GDP growth in the final quarter, with a clear risk of output contracting unless December proves a stronger month”.

Howard Archer, chief economic advisor to the EY Item Club, said there were “only modest crumbs of comfort” in the report.

“Conditions currently look challenging at home for manufacturers,” he said, “notably heightened business caution over investment and expenditure on capital goods amid significant uncertainties, particularly Brexit. Still limited consumer purchasing power and fragile confidence is also a constraint on demand for manufactured goods, particularly big-ticket items.

“The relative weakness in the pound may provide some help to UK manufacturing exporters although it is still clearly above its 2017-lows.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said, with overseas demand fragile, the manufacturing sector “does not have a buffer to withstand any lurch down in the domestic economy”.