UK PMI: Manufacturing sector hits nine-month high
The UK manufacturing sector had its best performance in nine months in January, halting a long-running decline that began in May of last year, survey data has shown.
The IHS Markit/Cips manufacturing purchasing managers index (PMI) rose to 50 in January as new orders and business confidence recovered. The score was well above December’s reading of 47.5 and higher than an initial estimate of 49.8.
A score of 50 indicates no change in the sector. But the PMI last posted a reading above this neutral level in April 2019, meaning UK manufacturing had been in contraction mode for eight months.
Britain’s factories had a tough 2019 as uncertainty hung over the sector while parliament failed to break the Brexit impasse. As exit deadlines were pushed back, factories repeatedly built up stocks and put planning precautions in place at high expense.
Yet firms have become more cheery since Boris Johnson’s Conservatives won a huge majority in the December General Election, paving the way for Britain’s exit from the EU, which took place on Friday night.
Today’s data confirmed that output has risen alongside sentiment in the latest sign of what some analysts are dubbing a “Boris bounce”.
Duncan Brock, group director at Cips, the Chartered Institute of Procurement & Supply, said: “It was home-grown orders that provided the fuel for manufacturing to move out of contraction territory as businesses returned to a little more normality.”
Employment levels were broadly unchanged from December, halting nine consecutive months of job losses. Meanwhile, optimism rose to an eight-month high.
Yet IHS Markit said new export business suffered in January as demand from key markets such as Europe dropped.
The pick-up in the manufacturing sector will be seen by many as vindicating the Bank of England’s decision to leave interest rates on hold at 0.75 per cent last week.
Explaining the decision, governor Mark Carney said there had been signs of a short-term rebound in the economy.
Yet he said: “These are still early days, and it is less of a case of so far so good, than so far, good enough.”
The Bank slashed its longer-term growth forecasts, citing the disruption Brexit would cause to the economy when the UK’s transition period ends in 2021 as well as weak productivity.
Johnson is due to lay out his plans for trade negotiations with the bloc at 11am. He is expected to say the UK will pursue a looser, Australian-style trade deal more akin to a no-deal Brexit than one which aims for close alignment.
The pound was trading 0.9 per cent per cent lower against the dollar at $1.308 ahead of the speech.
Steve Harris, head of manufacturing and industrials at Lloyds Bank, said: “While the Prime Minister now has a clear mandate to deliver Brexit, the widespread feeling in an export-focused industry is that the hard work of trade negotiation starts after 31 January.”