British manufacturers enjoy fastest rate of expansion in three years

Jasper Jolly
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The manufacturing has seen healthy expansion since the UK voted to leave the EU (Source: Getty)

Expansion in the British manufacturing sector boomed to a three-year high in April, according to a closely watched survey.

The manufacturing purchasing managers’ index (PMI) rose to a reading of 57.3, smashing expectations, according to IHS Markit.

Economists had expected expansion in the sector to slow to a reading of 54, although still well above the 50 mark which indicates no change. The sector has now remained in expansion mode for nine months.

Read more: Export boom for British manufacturers as foreign orders reach six-year high

New orders grew at the fastest pace since January 2014, with the domestic market the main source of new work.

Export work also gathered pace, continuing a "sweet spot" for British companies selling abroad as trade relationships stay the same and a weaker pound makes their products more attractive.

The surveys have portrayed a manufacturing sector in healthy growth mode since swinging to expansion in August.

The measure dipped in the immediate aftermath of the EU referendum in July as businesses and consumers anticipated economic chaos, with sterling plummeting. However, since then the UK economy has performed far better than most economists expected.

Read more: US growth falls to its slowest in three years

In the UK discussion of the Brexit vote overshadowed a stronger underlying economy as global growth started to stabilise after big fears over a possible Chinese bust in the first half of 2016.

Yet despite the warning signs from some indicators and the added uncertainty of the election campaign's effects on the post-Brexit trade deal, manufacturing firms are in an optimistic mood.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, which helped carry out the survey, said: “While the major political parties debate how best to leave Europe, British manufacturers have continued to increase their exports to the continent. A weaker pound has kept British products competitive on the world stage and encouraged the twelfth successive rise in manufacturing exports."

Read more: Sterling's decline could boost British business investment

However, the devaluation of sterling may be making its mark on growth now, with rising inflation expected by economists to weigh on consumer spending as wages fail to accelerate.

Retail sales fell at the fastest quarterly rate since 2010 at the start of this year, with the preliminary reading of GDP growth showing the British economy slowing more than expected, to only 0.3 per cent expansion in the first quarter.

Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, said: “The manufacturers we’re speaking to are confident but cautious and even the prospect of a general election in five weeks’ time does not seem to have worried them unduly given the result will mean a government in power until 2022.

Lloyds reports an increase in firms looking to take advantage of a much-improved environment for exporters. While the impact on import costs for manufacturers slowed to a nine-month low, according to the survey, economists are closely watching the feed-through to consumers – and the consequent impact on demand.

Atkinson said: "Manufacturers that sell directly to the public are sounding notes of caution as rising inflation and wider fears about a slowing economy appear to be negatively impacting consumer sentiment, a key driver of growth."

He added: “Yet we shouldn’t lose sight of the fact the UK manufacturing sector has been relatively robust in the wake of the EU referendum and growth remains significantly above the long-run average.”

Movements in currency markets reflected the mixed prospects, with the pound staging a small rally against the US dollar before retreating to just below $1.29.

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