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UK manufacturing activity sees modest “Brexit bounce” in January

By Amanda Cooper

UK factory activity picked up in January thanks to better domestic orders

UK manufacturing activity sees modest Brexit bounce in January

UK factory activity picked up in January, boosted largely by an improvement in domestic orders, while overseas demand, notably in Europe, continued to flag, according to a survey.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index was revised up to 50.0 in January 2020 from a preliminary estimate of 49.8, above December’s 47.5. A reading of 50 separates contraction from expansion. January’s was the highest reading since last April.

Greater political stability following the December 12 general election, less uncertainty surrounding the UK’s exit from the European Union and an improvement in the underlying economy pushed optimism among manufacturers to its highest since May, IHS Markit said.

"Improvements were mostly seen via rising consumer demand and renewed input buying by businesses, suggesting that the reduction in uncertainty following the election has encouraged households and businesses to step up spending. In contrast, an ongoing downturn at investment goods producers suggests that the economic certainty required to achieve a full revival in capital spending may still be some way off, likely reflecting lingering uncertainty about the Brexit road-map in the coming year.”

The report, based on a survey of 600 British-based manufacturers, showed new orders picked up slightly, despite a continued slide in exports. Companies cited weak economic growth in key markets – especially within Europe – as the main factor underlying the latest decline in new export orders, IHS Markit said.

The level of employment held unchanged, following nine continued months of job losses.

“With a small uplift in employment levels and optimism at an eight-month high, this is certainly better news than we’ve had in a while,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply. “Hopefully the momentum will now build in spite of potential obstacles and the sector pulls itself up by its bootstraps into growth next month as the UK negotiates its position with the EU.”

Another positive was the fastest pace of de-stocking since May 2013, reflecting the improvement in demand. On the price front, input cost inflation was the highest since last August, and output charges were up for the 45th straight month.

“Whilst exports fell for the third month in a row, it was home-grown orders that provided the fuel for manufacturing to move out of contraction territory as businesses returned to a little more normality” Brock said. “However though some firms unravelled existing stocks and purchased small levels of materials to see them through the next few months, there was no indication of a large-scale return to spending.”

FURTHER READING: Uncertain future for UK economy

FURTHER READING: UK service sector gets post-election bounce

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