Here at Custom Fittings we’ve been chronicling the ups and downs of the UK’s manufacturing industry for years, and it’s fair to say that the uncertainty surrounding Brexit put a huge dampener on the industry’s ability to thrive. Little did we predict though that the UK’s majority decision to leave the EU would have such a strong impact on the UK manufacturing industry, however.
July saw the worst performance for the UK manufacturing industry in 6 years as it slipped into a recession reading of 48.3 in Markit/CIPS purchasing managers index (PMI). Anything before 50 is considered a contraction of the space, and anything above 50 is expansion.
However, August saw a return to growth as the manufacturing sector recovered from the shock of Brexit and actually began to benefit from the fallout of the vote. Indeed, Markit’s PMI for August shows a reading of 53.3.
Part of the reason for this remarkable recovery, Markit suggest, is thanks to the weakened pound that followed the Brexit vote. Because the pound was worth less compared to other currencies, it makes the cost of exporting goods from England cheaper for countries around the world, which helped to push sales. However, it also pushed up firms’ costs, the report suggests.
Markit have said that the month-on-month increase in PMI level is now the joint largest in the survey’s 25 year history. "The August PMI data indicate a solid rebound in the performance of the UK manufacturing sector from the steep downturn that followed the EU referendum," said Rob Dobson, senior economist at Markit.
"The domestic market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business from the US, Europe, Scandinavia, Middle East and Asia," he added.
Those results line up with last week’s CBI survey, which found that export orders were climbing at their fastest rate in two years. It should be noted that, like many manufacturers, though we’ve seen strong demand for our products like welding fittings, much of the future of the UK’s exports depends on Brexit negotiations.
All of this has brought into question the Bank of England’s decision to reduce interest rates to a historic low of 0.25%. Laith Khalaf, from the investment firm Hargreaves Lansdown, said that the latest PMI figures were evidence that the bank made the wrong call. "It certainly seems that companies and consumers alike are carrying on with business as usual now the referendum is disappearing into the rear view mirror," he said.
"There's still a long way to go until Britain leaves the EU, and in the meantime, businesses still need to make money, so they can't just sit on their hands.
"However, the gathering pile of robust economic data might start to dissuade policymakers from any further monetary easing," he added.