Surprise splurge lifts gloom for manufacturers

Manufacturers shrugged off the gloom surrounding the UK’s post-Brexit economic prospects on Friday as a surprise surge in investment spending fired the sector to its best growth in four years.

The latest snapshot from a sector accounting for 10% of the nation’s output comes just a week after the Government’s fiscal watchdog, the Office for Budget Responsibility, slashed its outlook for the economy, laying out the weakest growth forecasts since the early Eighties.

Weak business investment has been seen as a particular hurdle to reviving the UK’s lagging productivity, but UK manufacturers reported the biggest jump in orders for goods like plant and machinery since 1994 in November, according to the Chartered Institute for Procurement and Supply.

Cips said the sector had “shifted up a gear” as its manufacturing activity index, where a score over 50 indicates expansion, jumped to 58.2 last month from 56.6, the best reading since August 2013. Employers are also taking on staff at the fastest rate for three years, it added.

Rob Dobson, a director at survey compiler IHS Markit, said the demand for investment spending was “of real note”. He added: “Capital spending, especially in the domestic market, is showing signs of renewed vigour.”

Export orders to the US and Europe, helped by the pound’s post-Brexit weakness, were a tailwind as manufacturers put fears over the UK’s uncertain relationship with the EU after Brexit aside for now. Capital Economics’ Ruth Gregory said the survey offered hopes that manufacturers would help offset a consumer slowdown driven by higher inflation.

But the UK figures came alongside evidence of even more rapid growth among manufacturers in the eurozone, which is the UK’s biggest trading partner.

IHS Markit said growth on the continent had hit its fastest pace since April 2000, with the quickest rise in employment for two decades.

Samuel Tombs of Pantheon Macroeconomics warned: “The truth is manufacturers are only doing well because they are still closely aligned with the booming eurozone.”

ING economist James Smith added: “We don’t expect overall growth to accelerate in 2018.”