UK manufacturing on ‘strong footing’

Activity in the UK’s manufacturing sector hit a two-and-a-half-year high last month, according to a survey.

The Markit/CIPS purchasing managers’ index (PMI) for the sector rose to 56.1 in December from 53.6 the month before. A figure above 50 indicates expansion.

The weaker pound helped to boost orders from overseas, the survey found, with the sector starting the year on a “strong footing”.

However, it also said that cost pressures faced by firms remained high.

“The UK manufacturing sector starts 2017 on a strong footing,” said Rob Dobson, senior economist at IHS Markit.

“Based on its historical relationship against official manufacturing output data, the survey is signalling a quarterly pace of growth approaching 1.5%, a surprisingly robust pace given the lacklustre start to the year and the uncertainty surrounding the EU referendum.

“The boost to competitiveness from the weak exchange rate has undoubtedly been a key driver of the recent turnaround, while the domestic market has remained a strong contributor to new business wins.”

Price pressures ‘elevated’

December’s headline PMI reading was a 30-month high, and the Markit/CIPS survey said rates of growth for production and new orders last month were among the best seen over the past two-and-a-half years.

It said companies saw “stronger inflows of new work from both domestic and overseas clients, the latter aided by the boost to competitiveness from the weak sterling exchange rate”.

Sterling fell sharply against other currencies last year following the UK’s vote in June to leave the EU, which has made UK goods cheaper for buyers from overseas.

However, the weakness of the pound has pushed up the price of imported goods, which has led to higher costs for many manufacturers.

The survey said price pressures remained “elevated” in December, with inflation for input costs and output charges remaining “among the fastest seen during the survey history”.

It added that companies passed on the higher costs, with selling prices rising for the eighth month in a row.

Many analysts expect these rising costs to lead to higher prices for consumers this year, pushing up the rate of inflation.

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Economy, General