British manufacturing endured something of a mixed latter half of 2016, posting strong export growth and job increases, whilst simultaneously seeing falls in investment. It’s a complicated picture, but new figures from Markit/CIPS have found that during the last month of 2016, British manufacturing growth climbed to a two and a half year high.
Fuelled by new orders from abroad, the Markit/CIPS PMI (Purchasing Managers Index) for December rose to 56.1, far above the 50 reading for non-change and the highest it’s been since June 2016. It also handily trumps November 2016’s reading of 53.6m and far exceeds what a Reuters poll of economists suggested December’s reading would be (53.1).
The manufacturing PMI showed that whilst domestic and export orders grew in December, so did the cost pressures facing factories, thanks largely to the devalued pound, which has meant sourcing parts and materials from overseas is increasingly expensive. Economists are suggesting that these price rises are will feed into consumer prices next year, pushing up inflation.
Lewis Crowther, CEO at Custom Fittings, a manufacturer of Aerospace testing adapters in the UK confirmed the current state of the UK manufacturing industry, commenting: “Post-Brexit, we’ve seen both strong overseas demand and a dramatic increase in the cost of sourcing parts and materials from abroad. Though positive in the short term, we remain concerned about investment levels in the medium and long term, as well as the government’s negotiating position in Europe”
Rob Dobson, Senior Economist at Markit, reacted to the manufacturing data for December, saying: “The UK manufacturing sector starts 2017 on a strong footing. The headline PMI hit a two-and-ahalf year high in December, with rates of expansion in output and new orders among the fastest seen during the survey’s 25-year history.
“Based on its historical relationship against official manufacturing output data, the survey is signalling a quarterly pace of growth approaching 1.5pc, 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. A plus point from the December survey was that the expansion was led by the investment and intermediate goods sectors, suggesting capital spending and corporate demand took the reins from the consumer in driving industrial growth forward.
On the prices front, higher input costs continued to feed through to increased selling prices, with rates of inflation remaining among the highest seen during the survey history. Of the companies citing a cause of higher costs, 75pc linked the increase to the exchange rate.”
On the back of the manufacturing news, the pound rose to a two-week high of 1.1817 euro. Previously, the data has caused the FTSE100 to rise to an all-time record high of 7,205.21. However, the increased value of the pound saw the FTSE100 climb down slightly, to 7,164.
Reflecting on the terrific opening, Joshua Mahony of IG said: “2017 has kicked off in fine style for the FTSE 100, which broke to a new record high at the open. 2016 is going to be a hard year to top, with an incredible amount of high risk events going against expectations. However, despite the fact that 2017 has fewer game changing events of note, today’s open reminds us that we are likely to face another year of substantial volatility.”