Manufacturing is bouncing back. Factory order books are bulging, output is up and the squeeze on exports from a strong pound and a weak global economy is coming to an end.
That is assuming the latest snapshot of industry from Cips/Markit provides an accurate picture of what is going on in a sector that makes up just 10% of the UK economy.
The surge in the manufacturing purchasing managers index (PMI) certainly took the financial markets by surprise – and no wonder. Official data has shown UK factory output falling for three successive quarters, the strength of sterling has been making exports more expensive, and there have been signs of a slowdown in the US and China.
On top of that, in the past month there has been dire news from the steel industry, including plant closures and thousands of job losses. Yet despite this unpromising backdrop, the manufacturing PMI has posted one of its strongest monthly increases in a run of data going back the best part of a quarter of a century.
Now, it could be that the impact of the strong pound is waning just as the worst of the global slowdown is over. The slight pick-up in the eurozone, Britain’s biggest export market for manufactured goods, could be helping exports. It is possible that domestic demand is being boosted by a recovery in investment and by rising consumer spending power.
If so, that would be entirely welcome because a revival in manufacturing would give a more solid feel to an economy showing all its familiar unbalanced traits.
But don’t bank on it. Unless the latest strong PMI is supported by a second in December and a third in January, the obvious explanation for the surge is probably the correct one. It’s a blip.
