Over the last 6 months, UK manufacturing has gone from solid economic cornerstone to Brexit lightning rod, eagerly watched by commentators on both sides of the debate as a measure of confidence in the economy.
The months following the referendum have been revealing, though not in a way that anybody could truly predict. Gloomily cast as a potential candidate for extinction by the Remain camp and never refuted by the Leave side, it seemed as though UK manufacturing might fall off a cliff in the aftermath of the vote, but the opposite seems to have happened. With growth witnessed in the sector, powered by strong demand for British product from overseas.
Now, Markit/CIPS purchasing manager’s index for manufacturing has been published for October, and it reveals that manufacturing continued to grow as we reached autumn, sitting at 54.3. That figure is lower than September’s 55.5 reading, but still above the 50 mark which indicates expansion.
So, what’s driving that expansion? Well, if you ask the experts, they think it’s the falling price in the pound.
With Sterling at an extremely low price, it’s meant that buying British from overseas is cheaper than it has been in recent memory, boosting orders from the US, EU and China. The expansion in orders has also driven employment in the sector up for the second month running, after numerous years of decline.
On the other hand, the weak pound also dramatically increased the cost of importing raw materials to the UK, like BSP 150lb class pipe fittings. Price inflation for goods being bought by manufacturers rose at its highest rate in 5 years, and was the fourth highest in since the survey began in 1992.
Rob Dobson, senior economist at Markit, said: "The UK manufacturing sector remained on a firm footing in October and should return to growth in the fourth quarter.
"Despite slowing from September's highs, growth of output and new orders continued to defy expectations, rising at marked rates and supporting the fastest job creation in a year.
"The main topic of the latest PMI survey was, however, the impact of the sterling depreciation on manufacturers.
"On the positive side, the boost to competitiveness drove new export order inflows higher, providing a key support to output volumes.
"The downside of the weaker currency is becoming increasingly evident, however, with increased import prices leading to one of the steepest rises in purchasing costs in the near 25-year survey history."
The pound, however, enjoyed a rally yesterday as it was revealed that the High Court has declared that the Conservative government must seek Parliament’s permission to trigger Article 50. This has thrown some doubt over the prospect of the UK leaving the EU at all, but with a large majority of MPs expected to listen to the will of the nation, it’s extremely likely we trigger Article 50.
It does, however, give Parliament leverage to demand to know what terms Mrs May and her team are looking for in the Brexit split. Thus far, they have been cagey in saying exactly what their terms are, but with a need for safe passage through the house. We (and the UK manufacturing) industry could get a glimpse into a possible future very shortly indeed.
