London - UK manufacturing unexpectedly grew at the fastest pace in three years in April as the domestic market strengthened and the pound’s depreciation boosted exports.
A measure of factory conditions rose to 57.3 from 54.2 in March, according to IHS Markit’s Purchasing Managers’ Index. That’s far better than the 54 forecast by economists in a Bloomberg survey and above the 50 level dividing expansion from contraction.
The report reinforces the view that exporters are in what Bank of England Deputy Governor Ben Broadbent has called a “sweet spot,” since the currency’s decline has increased competitiveness, while the UK still enjoys free trade with the European Union single market. Still, sterling is also fuelling inflation, and the consumer side of the economy is showing signs of weakness.
The drop in the pound “helped manufacturers take full advantage of the recent signs of revival in the global economy, and especially the eurozone,” said Rob Dobson, senior economist at IHS Markit. “The big question is whether this growth spurt can be maintained.”
Markit’s survey also highlighted the mixed effects of the pound’s decline since the vote to leave the EU. Factory price pressures remained elevated last month, with input costs above their long-run average.
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Economic growth since the referendum has for the most part outperformed expectations, but weakness is beginning to appear as faster inflation squeezes living standards. Expansion slipped to 0.3 percent in the first quarter - the least in a year - largely down to a weaker consumer. A gauge of services from Markit due Thursday is forecast to decline to 54.5 in April from 55 in March.
UK Prime Minister Theresa May triggered official exit negotiations with EU leaders in March, and called an early general election for June to try to strengthen her hand in the talks.