UK factories rebound from Brexit shock as pound boosts exports1 min read . Updated: 01 Sep 2016, 04:02 PM IST
IHS Markit said its Purchasing Managers Index (PMI), which dropped below the key 50 level in July, jumped by a record to 53.3
London: UK factory activity reached a 10-month high in August as the weaker pound helped manufacturing bounce back from a post-Brexit slump.
IHS Markit said its Purchasing Managers Index (PMI), which dropped below the key 50 level in July, jumped by a record to 53.3. That was far better than economists had forecast; the median estimate in a Bloomberg survey was for a reading of 49. New orders rose, with sterling’s recent drop “by far the main factor" for the improvement in exports, Markit said.
“Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual," said Rob Dobson, senior economist at Markit.
The pound advanced 0.8% after the data were published to reach $1.3249 at 9:46 am London time. It has fallen more than 10% against the dollar since Britain’s decision on 23 June to leave the European Union (EU).
The referendum result initially sent measures of confidence and activity plunging, prompting an injection of new stimulus by the Bank of England last month. Surveys have since partly recovered, though uncertainty over how the UK will actually exit the bloc remains an issue.
“We knew it was going to be a bounce. But I wasn’t expecting it to be as strong as this bounce," Jonathan Bell, chief investment officer at Stanhope Capital Inc, said in an interview on Bloomberg Television’s The Pulse with Mark Barton. “There are indications of confidence there and the concerns about the UK going into recession in the fourth quarter are maybe being allayed a bit."
Prime Minister Theresa May said she won’t try to keep Britain in the EU “by the backdoor." At a meeting of the Cabinet on Wednesday, she told ministers that “Brexit means Brexit" and the government will deliver that.
The pound’s plunge is also fueling import costs. Markit’s measures of input prices and output charges both hit five-year highs in August.
“It is too early to say whether the rebounds in growth and inflation will be sustained," Dobson said. “But the upturn in August suggests that the weaker exchange rate and recent policy action have helped to avert a downturn." Bloomberg