UK factory orders hit four-year high

Britain’s factories are enjoying the best business conditions for more than four years as strong demand at home and abroad boosts order books, production and jobs.

Comfortably beating expectations in the City, the monthly health check of industry from the research firm IHS Markit and the Chartered Institute of Purchasing and Supply was the most upbeat for the sector since the summer of 2013.

The purchasing managers index – seen as a guide to the performance of manufacturing in the months ahead – rose from 56.6 in October to 58.2 in November, with all parts of manufacturing in upbeat mood. IHS said it was the 10th best showing in the survey’s 26-year history.

Rob Dobson, director at IHS Markit, said: “UK manufacturing shifted up a gear in November, with growth of output, new orders and employment all gathering pace. On its current course, manufacturing production is rising at a quarterly rate approaching 2%, providing a real boost to the pace of broader economic expansion.

Despite concerns that uncertainty about the UK’s departure from the European Union was holding back capital spending, the Markit/CIPS report said UK producers of investment goods had seen the sharpest increase in orders since 1994.

Dobson said: “The breadth of the rebound is also positive, with growth strengthening across the consumer, intermediate and investment goods industries. Of real note was a surge in demand for UK investment goods, such as plant and machinery, with new orders for these products rising to the greatest extent in over two decades. This suggests that capital spending, especially in the domestic market, is showing signs of renewed vigour. “

The release of the UK PMI followed an even stronger report from the eurozone, where manufacturing has posted its second best performance since the single currency was founded in the 1990s. The final eurozone PMI stood at 60.1, slightly up on the flash estimate of 60.0. Any reading above 50 indicates that manufacturing is expanding.

Ruth Gregory, UK analyst at Capital Economics, said that the strength of the UK PMI pointed to manufacturing output growth of 2% in the final three months of 2017, but warned that the surveys were not always a good guide to the official figures.

While accounting for only 10% of UK output, the recent strength of manufacturing has offset the dampening effect of the weaker pound on consumer spending. Currency movement since the Brexit vote in June 2016 have made exports cheaper but imports dearer, rebalancing the economy away from its previous reliance on consumption.

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “The survey points to everything coming up roses for manufacturing in the closing months of the year, with robust increases in production levels and solid growth in new orders from both UK customers and overseas. With the European manufacturing PMIs showing levels of expansion at multi-year highs, the benefits for UK exporters are clearly evident, whilst the rebound in manufacturing investment globally is driving activity growth across capital goods manufacturers in the UK.”