Some will celebrate—but here are four reasons that we should not get carried awayby George Magnus / September 1, 2016 / Leave a comment
UK manufacturing output and orders snapped back in August, according to this morning’s Markit/CIPS purchasing managers’ index. In fact the 5 point jump in the reading from 48.2 to 53.3 was the joint highest ever recorded. This is unequivocally good news for the manufacturing sector after the plunge following the referendum on Britain’s membership of the European Union. The main factor cited by respondents for their optimism was the slump in the value of the pound—which surged by almost 1 per cent after the release—helping to boost business abroad. But to be fair, it looks as though the home market was more upbeat too.
It would have been shocking if the August PMI hadn’t bounced back bearing in mind that the prior one gathered opinions from respondents in the wake of the mind-freeze after the referendum. So, in addition to the fall in Sterling, we can also attribute the bounce to some post-referendum “catching-up” because—and it needs saying—we haven’t actually left the EU yet, and are unlikely to do so for a considerable time. Not to mention that when we do it will be on terms that no one has a clue about, least of all the government. Accordingly, while economic myopia or simple cheerleading will cause some to rejoice at the August manufacturing data, we should not get carried away after a one month surge in a business sentiment index, following a precipitous drop. Here are four important reasons why that is the case.
First, the better tone in UK manufacturing, according to the survey, is down largely to the fall in Sterling, but it may not fall so abruptly every month. In fact it won’t.
Second, it also echoes a bounce in the manufacturing PMIs in other countries, including China and even beleaguered Greece, as reported this morning. The global economy is hardly firing on all cylinders, but things are looking alright this summer, with activity rates stabilising or rising in the US, the euro Area, and across much of Asia.
Third, as long as we are in the EU and, specifically, an integral part of the Single Market and the EU’s network of global…