Daily Management Review

U.K. PMI Report Downs Brexit Fears, Shows Rebound of Factory Activity in August


09/01/2016




U.K. PMI Report Downs Brexit Fears, Shows Rebound of Factory Activity in August
Helped by a boost to exports from sterling's post-Brexit slump¸ factories recovered from the initial shock of June's vote to leave the European Union as British manufacturing staged one of its sharpest rebounds on record in August.
  
After tumbling to a three-year low in July after the referendum, which was revised down to 48.3 from 48.2, the Markit/CIPS Purchasing Managers' Index (PMI) - a closely watched gauge of factory activity - jumped to a 10-month high of 53.3 in August.
 
The five-point monthly surge far outstripped all forecasts in a Reuters poll of economists and was the joint-largest in the manufacturing survey's near 25-year history. But it also underscored how the weaker currency is likely to fuel inflation.
 
Manufacturing, which accounts for 10 percent of Britain's economy, is weathering the initial impact of the vote better than feared, Thursday's survey suggests even as data over the past couple of weeks have shown consumer demand held up in the face of the referendum result.
 
"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," Markit economist Rob Dobson said.
 
"The domestic market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business," he added.
 
Losses to the Sterling have not been recouped n speculations that the Bank of England will lower interest rates again later this year and as markets bet on a long-term hit to British economic performance, as in post Brexit, the sterling had fallen by more than 10 percent against the dollar and the euro after Britons unexpectedly voted to leave the EU.
 
Economists will keep a close watch for the far larger, more domestically focused services sector figures due to be published on Monday and want to see if the rebound in manufacturing PMI is also reflected there.
 
A big factor behind the BoE's decision on Aug. 4 to cut rates to a record low and restart bond purchases was the weak PMI surveys of July which had suggested the economy had begun to contract at the fastest rate since the 2008-09 financial crisis.
 
Though overall order growth was below June's rapid pace, August's manufacturing PMI showed export orders flowed in at their fastest rate since June 2014. Output in the factories were increased by the highest amount since January, the data showed.
 
Despite a subdued domestic demand than the PMI, export orders rising at the fastest rate in two years in the first part of August, showed a separate survey published last week by the Confederation of British Industry.
 
However uncertainty still prevails in Britain's access to European export markets in the longer run. Prime Minister Theresa May's new government has given no detail on whether it would allow unlimited EU migration in return for continued easy trade access – a likely demand of other countries in the bloc and has not even said when it will start formal talks to leave the EU.
 
(Source:www.cnbc.com) 






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