Britain’s manufacturing sector finished the second quarter on a strong note, with an index of sentiment among purchasing managers suggesting rapid output growth and an improvement in the sector’s productivity.
The bullish figures, and relative weakness in the eurozone, helped the pound rise to $1.7132, its highest level since October 2008. The FTSE 100 was up 0.4 per cent at 6,771.39, with the FTSE 250, seen as more representative of the domestic UK economy, up 0.2 per cent.
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The survey of manufacturing PMI stood at 57.5, its second-highest level in over three years and up from 57 in May. These levels, at which the index has hovered since last summer, suggested “a robust second quarter”, according to Markit, the consultancy which compiles the figures.
The strength in monthly manufacturing PMIs has been reflected in the more accurate but less timely official output data, which grew at an annual rate of 4.4 per cent in April.
Separate data from the Office for National Statistics showed that the country’s weak labour productivity continued in the first quarter of the year, however, with output per hour falling 0.1 per cent compared with the previous quarter.
Output per hour remains 4.3 percentage points below the level of early 2008, before the downturn.
The components of the manufacturing PMI suggested the sector would remain strong over the months ahead. The level of new business orders was the highest since November and export orders also strengthened.
Manufacturers had the confidence to continue increasing employment with the job creation component of the PMI at a 39-month high.
Rob Dobson, senior economist at Markit, said: “UK manufacturing continued to flourish in June, rounding off one of the best quarters for the sector over the past two decades.”
Although the sector accounts for only 10 per cent of the British economy, manufacturing has traditionally been a driver of higher incomes and productivity.
There were signs in official data that the period in which manufacturing productivity has sagged were coming to an end with the annual increase of manufacturing output per hour worked reaching 3 per cent in the first quarter.
The gains in manufacturing productivity were concentrated in the high-tech sectors of computing, electrical products, machine tools and transport equipment.
The growth of productivity led to a small decline in unit wage costs, which will help to offset the strength of sterling for exporters.
Commenting on the data, which was published on Tuesday, Lee Hopley, chief economist at EEF manufacturers’ organisation, said: “So far this year it’s been the domestic market that had been a particular source of strength, but we should be encouraged that new orders from overseas markets are now coming through.”
Alan Clarke, of Scotiabank, said with manufacturing data this strong even with stronger sterling, the quarterly rate of economic growth was likely to remain close to 1 per cent and “would support the case for [an interest rate] hike this side of Christmas”.
Additional reporting by Brian Groom
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