Shares in London fell as sterling rallied after figures showed Britain’s manufacturing activity hit a 10-month high in August, rebounding strongly from a slump triggered by the country’s vote in favour of exiting the European Union.
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August’s headline rise matched the biggest month-on-month increase in the survey’s almost 25-year history, media reports quoted Markit as saying.
“The latest survey indicates only a partial move towards stabilization, rather than a return to business as usual across the construction sector”, Tim Moore, an economist at Markit, said in the report.
Sterling soared by more than a cent against the dollar after the five-point monthly increase, which was the joint-largest in the manufacturing survey’s almost 25-year history.
The FTSE 100 is up around 10 percent so far in 2016, although the USA dollar value of United Kingdom shares has been impacted by a drop in sterling in the immediate aftermath of June’s Brexit vote.
“The recent depreciation of sterling drove higher inflows of new business from the USA, Europe, Scandinavia, Middle East and Asia”.
An official measure of manufacturing activity in China rebounded in August to its strongest level in almost two years on improving production and demand, the government said Thursday, boding well for the world’s second-largest economy.
“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.
Manufacturers also reported an unusually big rise in input prices, which are likely to feed into prices on the high street next year, potentially crimping consumer demand – a key pillar of economic growth.
The expansion comes at a time when the first quarter of this financial year saw a 9.1 per cent growth in manufacturing.
Markit – the firm which compiles the survey results from thousand of companies – predicts further weakness in September thanks to a slowdown of new orders.
In Japan, manufacturing showed signs of steadying, but the IHS Markit/Nikkei PMI was still in contraction at 49.5 in August. In the short term, at least, a more positive outlook from businesses and consumers will help grease the wheels of the economy, spurring spending and investment.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said the manufacturing data adds to a picture of improved sentiment since the fallout of the referendum result.
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He said the sharp improvement in sentiment calls into question the Bank of England’s decision to cut interest rates from 0.5% to 0.25% at the beginning of August.
