Industry data on Thursday revealed that manufacturing activity in Britain registered an unexpected loss in November, stemming from a weaker sterling that had factories struggle with soaring costs.
Markit, a market research firm, reported that its UK manufacturing PMI (Purchasing Managers’ Index) crawled lower to a seasonally adjusted 53.4 in the prior month, compared with October’s reading of 54.2. November’s number had failed to surpass the analysts’ expectation of an increase to 54.5.
On the said index, a reading marked above 50.0 designates industry expansion, and a reading below indicates contraction instead. Markit specified that the weak exchange rate was ramping up input costs. Rob Dobson, a senior economist at survey compiler in Markit, noted that the exchange rate was having a “major impact” at manufacturers.
The slump in the currency was caused by the UK’s vote to leave the European Union in January, and this weaker pound failed to lift export orders as much as in the last months. Nonetheless, Britain's economy has performed much better than expected since Brexit.
However, a bigger test will come in 2017 when inflation is forecasted to surge sharply, eating into households' spending power.
The PMI's gauge of prices paid by factories for materials and energy rose at a rate just shy of October's near six-year peak, while prices of finished goods also leaped sharply again.
The research group also mentioned that although growth of production and orders dropped its drive, it still lingered above long-run trends nonetheless. The report revealed that November was the fourth consecutive month of growth for the UK manufacturing sector.
“On the plus side, the boost to export competitiveness is leading to increased inflows of new export business,” Dobson added.
“However, 84% of manufacturers offering a reason for higher purchase prices made at least some reference to rising import costs due to the exchange rate,” He further explained, stating that selling prices climbed to one of the greatest extents in the past five-and-a-half years.
A manufacturing survey from the Confederation of British Industry posted in the previous week displayed the biggest increase in price pressures for almost three years, although new orders jumped at the fastest rate since before the Brexit vote.
The future for business investment is another uncertainty hanging over the British economy the following year. The Markit survey indicated signs of weakness.
“The trend in new orders for investment goods such as plant and machinery has eased sharply so far in the fourth quarter and will need to improve if investment is to continue to contribute positively to economic growth," Dobson said.
According to the PMI report, manufacturers hired staff at a slightly slower pace than in October.
Be reminded that the PMI surveys often differ with official data on Britain's manufacturing sector. According to the Office for National Statistics last week, manufacturing fell by almost 1% in quarterly terms in the July-September period.
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