British manufacturing sector bounces back with stronger than expected expansion, contradicting government data

 
Jasper Jolly
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British manufacturers reported an expansion in every month since last July (Source: Getty)

The British manufacturing sector bounced back from a slowdown to post a much stronger than expected expansion, according to a closely watched indicator which adds a further puzzling divergence from government measures of production.

The purchasing managers' index (PMI) for the manufacturing sector in July rose to 55.1, well above economists' consensus expectations of a 54.4 reading, according to data company IHS Markit. Any reading above 50 indicates the sector is expansionary mode.

The reading for the manufacturing industry had previously fallen from its April high to reach 54.2 in June.

The sharp increase in July was caused by "strong inflows of new work" and yet another strong export reading, IHS Markit reported.

Read more: British manufacturing production grows at fastest pace since 1995

New export business increased at the second-strongest rate in the history of the survey, beaten only by the reading in April 2010. Export demand came from around the world, both in Europe and beyond, the survey found.

Analysts have long predicted a boost for exporters from the devaluation of sterling after the EU referendum. The PMIs show buoyant demand, while the Confederation of British Industry (CBI) reports that manufacturing output grew at its fastest pace since 1995.

However, economists have been left scratching their heads as to why the survey evidence is not reflected in a boost to the overall economy.

The latest survey adds more evidence that parts of the manufacturing sector are enjoying a healthy expansion, despite the fact that production actually proved to be a drag on growth in the second quarter of the year. Office for National Statistics (ONS) data showed manufacturing output fell by 0.5 per cent in the second quarter, although this period does not coincide exactly with the latest survey data.

Read more: Pound below $1.30 after growth UK manufacturing disappoints in June

The picture may be somewhere in the middle of the CBI surge and the official figures, according to Chris Williamson, chief business economist at IHS Markit, who compile the PMIs.

He said: "We believe that neither of these contrasting pictures of a sector that is either booming or slumping accurately portray the current state of UK manufacturing."

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, took an upbeat view for future growth prospects, saying the survey shows British manufacturers "riding high going into the second half of the year".

She added: "Above-trend responses across the key components of the survey would signal that the drag on overall economic growth from the sector in the second quarter of this year is likely to be temporary."

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