The survey found that the plunge in the pound since Britain’s June 23 vote to leave the European Union had boosted export orders, but also the costs of imported raw materials.
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The weak PMI surveys of July suggested the economy had begun to contract at the fastest rate since the 2008-09 financial crisis and were a big factor behind the BoE’s decision on August 4 to cut rates to a record low and restart bond purchases.
The report said the new orders index plunged to 49.1 in August from 56.9 in July, while the production index tumbled to 49.6 from 55.4.
“Nonetheless, the risks of recession have not disappeared and with surveys still suggesting a significant pullback on hiring and investment intentions we remain concerned about the prospect of a weaker performance around the turn of the year”. Markit’s index readings above 50 indicate expansion while those below indicate contraction. It was also 0.8% higher against the euro at 1.187 euro. Picture taken on August 18, 2016.
“We have been getting lots of inquiries, but not a lot of sales order placements”, said a survey respondent in the chemicals sector.
Manufacturing growth in the currency bloc slowed during August. “Northern countries including Germany, the Netherlands and Austria are providing the main power to the expansion, but elsewhere the picture is looking more subdued”, he added. France and Italy showed declines, Greece stagnated and Spain saw its worst growth since mid-2013.
This was down from the flash estimate of 51.8 and July’s reading of 52.0.
“We would expect manufacturing exports to fare well post-Brexit because they gain from falling sterling, but the surprise is that domestic business picked up too”, Investec economist Chris Hare said. Any upbeat data, especially on the job market, will be closely watched by the Federal Reserve as it could push the United States central bank closer to raising interest rates. Companies were also cautious with regard to purchasing activity that dropped for the second straight month.
“Today’s data provides a lot of relief that manufacturing activity is still on the up”, she said.
With central banks nearly exhausting their monetary policy support, governments have increased fiscal stimulus. However, the report noted the growth here was only slight, with roughly three-quarters of panellists signalling either unchanged or lower customer demand.
The EEF manufacturers trade body said firms “appear to have their mojo back in August” but added the figures probably exaggerated the sector’s true strength and would weaken.
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The Office for National Statistics (ONS) confirmed last week that gross domestic product (GDP) grew by 0.6% in the second quarter, up from 0.4% in the first three months of 2016.
