Manufacturing activity picks up as sector awaits Brexit effect

Activity in the manufacturing sector rose in June with businesses reporting a pick-up in new orders.

Investec’s latest Purchasing Managers’ Index (PMI) for the sector did not, however, capture the aftermath of the UK’s shock referendum result on EU membership, which is expected to have a significant impact on next month’s numbers.

The headline PMI for June rose to 53, up from 51.5 the previous month, and above the 50 line separates growth from contraction. The sequence of growth in the sector now extends to 37 months.

Manufacturers reported a small rise in the rate of growth of new orders during the month. New export orders, which had retreated the previous month on Brexit fears, also returned to growth.

However, the report cautioned that given sterling’s recent fall coupled with the wider global uncertainties, the near-term prospects for this sub-index was highly uncertain.

Investec’s Philip O’Sullivan noted there were some indications within the report that firms were “conservatively positioned” going into the referendum.

For a second month in a row there was only a very slight increase recorded in the quantity of purchases index, while stocks of purchases contracted for a second month running.

Companies also reduced their stocks of finished goods for a third successive month (and at the fastest pace since March 2015) in June.

“Given this, it is perhaps a little surprising (albeit not unwelcome) to see that firms added to payrolls at a healthy clip in June,” Mr O’Sullivan said.

On the margin side, the report showed input prices increased at their fastest pace since September 2013 in June, with panellists attributing this to increased commodity prices, in particular oil and food.

Firms were, however, able to pass on at least some of this to end-customers, with an increase in Output Prices recorded for the first time in six months.

Britain’s manufacturing industry stepped up to a five-month high and broke free of its “early year sluggishness” on the run up to Britain’s vote to leave the EU. The closely-watched Markit/CIPS UK Manufacturing purchasing managers’ index showed a reading of 52.1 for June, its highest level since January, as it climbed from a revised reading of 50.4 in May. However, the study was made between June 13 and the 27, with 99 per cent of the responses coming before it was revealed that Britain had opted to exit the EU.

Rising domestic and foreign demand, mainly from the US and China, meanwhile,lifted German factory activity to a 28-month high in June, a survey showed on Friday, signalling that manufacturers are set to increase production in coming months. Markit’s Purchasing Managers’ Index for manufacturing, which accounts for about a fifth of the German economy, rose to 54.5 in June from 52.1 in May. The reading was the highest since February 2014. It also came in higher than the preliminary reading of 54.4. The rise was fuelled by higher production, which posted its strongest increase in more than two years, and new orders, which rose for the 19th month in a row.