UK manufacturing index surprises with jump to 3-year high

Growth in the UK’s manufacturing sector unexpectedly rebounded in April, confounding expectations of a slide to push an index measuring the sector’s health to a three-year high.

IHS Markit’s purchasing managers’ index for the sector, which accounts for around 10 per cent of the economy, climbed to 57.3, from March’s 54.2.

The pound reversed earlier losses to turn slightly positive for the day on the news, at $1.29.

The PMI surveys question firms on factors including output, new orders, employment and inventories to produce a picture of the overall health of a sector. Every sub-component of the index improved in the month, with respondents reporting their strongest inflows of new work since January 2014.

Buoyant global markets and a weak pound boosted exporters, with the relatively low price of British goods leading to higher demand from clients in North America, Europe, Africa and Brazil, according to IHS Markit.

However, sterling’s weakness also drove up cost pressures, with purchase price inflation remaining above its long-run average, though the pace of growth was lower than a record high hit in January.

The Bank of England’s Ben Broadbent said recently that the fall in the pound since the Brexit vote had created a temporary “sweet spot” for British exporters, which are currently benefiting from increased competitiveness while maintaining all their access to EU markets. He warned, however, that the weakness was unlikely to bring any lasting benefits.

Rob Dobson, senior economist at IHS Markit, said:

The UK manufacturing sector made a solid start to the second quarter. Growth of output, new orders and employment all gathered pace, driven higher by the continued strength of the domestic market.

There was also a solid bounce in new export business, as the weak sterling exchange rate helped manufacturers take full advantage of the recent signs of revival in the global economy, and especially the eurozone, which is enjoying its best growth spell for six years. Although price pressures remain elevated, input cost inflation has eased significantly since hitting a record high in January.