UK manufacturing growth surges

Published May 2, 2017

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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.

BLOOMBERG

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