Britain’s manufacturers are showing signs of a slowdown in growth, as the boost to exporters from the weak pound is offset by rising production costs and fears over Brexit.
Sterling’s depreciation was expected to benefit manufacturers as their goods become more competitively priced for foreign buyers. However the cost of imported materials used in the production process has also risen, hitting a six-month high last month, according to a closely watched barometer of factory sentiment.
Yesterday’s UK Manufacturing Purchasing Managers’ Index (PMI) fell to 55.9 from a downwardly revised 56.7 in August, below estimates of 56.4. While the PMI survey indicated solid expansion at British factories, softer growth in new orders and a slowdown among producers of investment goods raised concern about the months ahead. Costs paid by factories for goods shot up at the fastest pace since March, the PMI showed, spurred in part by an increase in commodity prices and capacity constraints in the supply chain and the weaker pound.
U.S. factory activity surged to a more than 13-year high in September due to strong gains in new orders, pointing to strength in the US economy although Hurricanes Harvey and Irma are expected to dent growth in the third quarter. The Institute for Supply Management (ISM) said its index of national factory activity surged to a reading of 60.8 last month, the highest reading since May 2004.
The economic outlook was also strengthened by other data on Monday showing a rebound in construction spending in August rising 0.5 percent to $1.21 trillion. The acceleration in manufacturing activity and the accompanying increase in prices could harden expectations that the Federal Reserve will raise interest rates in December.
09:30 –GBP: PMI Construction (Sept) expected to fall to 50.8 from 51.1