UK Manufacturing boosted by weak pound
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UK Manufacturing boosted by weak pound

Manufacturing in the UK grew at its fastest pace in two and a half years in December, according to the IHS Markit Purchasing Managers Index (PMI). Pushed up by the weakening of the pound since the UK’s vote to leave the European Union last June (Brexit), the PMI rose from 53.6 in November to 56.1 last month. That’s the highest it’s been since June 2014, and it also beat estimates from a survey of economists by Bloomberg News, who saw 53.3 as the likely figure.

Manufacturing Pickup
U.K. factory PMI rises to 30-month high

Rob Dobson, an economist at Markit, said “the boost to competitiveness from the weak exchange rate has undoubtedly been a key driver of the recent turnaround.”

The pound has declined by 17% since the Brexit vote last year, fuelling competitiveness and inflation. According to Markit, both costs and output prices rose for an eighth straight month in December. And, while price growth rates slowed last month, they’re still “among the fastest seen during the survey history,” according to Markit.

Accordingly, in a note, Markit commented that the (signaled) 1.5% rise in quarterly manufacturing growth represented a “surprisingly robust pace given the lackluster start to the year and the uncertainty surrounding the EU referendum.”

Bank of England policy makers have been spurred on by the change in outlook for UK price growth, as well as the relative strength of the economy. As a result, they’ve shifted from a neutral stance to an easing one, as consumer-price inflation now looks on course to exceed their 2% target in months. According to a survey of economists carried out by Bloomberg, the Bank’s “key interest rate will stay on hold through 2017”. 

The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice. 

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