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UK manufacturing hit a five-month high before the Brexit vote

01 July, 2016

The UK manufacturing sector started to pick up in the first half of 2016 with the PMI (Purchasing Managers’ Index) reaching a five-month high in June, according to the latest figures from Markit and the Chartered Institute of Procurement & Supply (CIPS). But the survey was conducted before the recent referendum in which the UK decided to leave the European Union.

“With 99% of survey responses received before the end of 23rd June [the day of the referendum], the latest PMI signalled that the manufacturing sector has started to move out of its early-year sluggishness in the lead up to the UK’s EU referendum,” says Markit’s senior economist, Rob Dobson. “The headline PMI rose to a five-month high in June on the back of improved rates of expansion in both production and new order volumes. There were also signs that the trend in new export business was starting to pick up and a rebound in demand for capital goods – a key bellwether of broader investment spending.

“Whether this growth recovery can be sustained will depend heavily on whether the current financial and political volatility spills over to the real economy,” he adds. “While the Bank of England remains poised to act if needed and the UK’s trading relationships are unchanged during the two-year negotiation period, there’s a clear risk that on-going uncertainty will have at least some short-term impact on manufacturing during the coming quarters. The big question is whether any negative impact from uncertainty can be partly offset by a boost to exports resulting from the fall in the pound.”

According to CIPS CEO David Noble, the survey also reveals that “employment levels continued their downward path for the sixth consecutive month, with companies eager to improve efficiency, and control costs. Uncertainty about the outcome of the referendum and recent indecision from clients placing new orders continued to take their toll on an already challenged industry.

The UK's manufacturing sector began to show signs of recovery in the first half of 2016, according to the latest PMI figures
Source: Markit / CIPS

“The industry has built some momentum in recent months,” Noble adds. “Whether this is sustainable in a post-Brexit world as the UK returns to a period of uncertainty, is anyone’s guess.”

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