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Financial News: UK Manufacturing Growth Unexpectedly Improves As Factories

UK Manufacturing Growth Unexpectedly Improves As Factories Prepare For Brexit

01/02/2019 - 06:00:00 (RTTNews)

(RTTNews) - UK manufacturing sector expanded at the fastest pace in six months in December, defying expectations for a slowing, as demand strengthened as manufacturers and clients prepared for Brexit.

The CIPS UK manufacturing Purchasing Managers' Index, or PMI, climbed to 54.2 from November's 53.6, survey data from IHS Markit showed on Wednesday.

Economists had forecast a lower score of 52.5. A PMI reading above 50 shows growth in the manufacturing sector.

"Any positive impact on the PMI is likely to be short-lived, however, as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete," IHS Markit Director Rob Dobson said.

"Manufacturing will therefore be entering 2019 on a less than ideal footing with Brexit uncertainty having intensified considerably," Dobson added.

Britain is preparing to leave the European Union on March 29, 2019.

Despite surviving a recent no-confidence motion triggered within the Conservative Party and delaying a crucial vote on a Brexit deal, Prime Minister Theresa May is yet to achieve a consensus among lawmakers regarding Britain's future relationship with the EU.

The PMI reading for the fourth quarter of 2018 was the weakest since the third quarter of 2016, which was immediately after the EU referendum.

The average PMI score for 2018 was 53.9, which was below the 55.9 reading for 2017.

The latest improvement in the PMI was mainly driven by an increase in new business and a robust growth in stocks of purchases. Meanwhile, output growth slowed from November.

New order growth hit a ten-month high led by demand from both domestic and foreign markets.

Manufacturers linked increases in both domestic and overseas demand to clients purchasing to build up safety stocks to mitigate potential Brexit disruption, IHS Markit said.

Export market benefited from the weakness of the sterling exchange rate and witnessed improved demand from the US, Europe, China, India and Brazil.

As companies implemented plans to reduce potential supply-chain disruption due to Brexit, they scaled up their input buying volumes, leading to the fourth-fastest pace of input inventory growth in 27 years.

Similarly, the rate of increase in the stock of finished goods in December was the second-strongest since the survey began in 1992.

Confidence among manufacturers regarding output growth in 12 months' time was slightly above November's 27-month low as Brexit and exchange rate uncertainties weighed on the outlook for the year ahead.

Input cost inflation slowed to a two-and-a-half year low in December, while output charge inflation hit a three-month high as manufacturers passed on higher input costs to clients.

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