U.K. manufacturing PMI index rises in November, services sector to drive near-term growth outlook

The U.K. manufacturing PMI rose in the month of November from October’s 27-month low. The index rose to 53.2 in November from 51.1. The outturn came in above consensus expectations of a rise to 51.7. Delving into details, while output rebounded last month, the biggest rebound in manufacturing sentiment was because of a noticeable turnaround in the flow of new orders, with the component’s balance rebounded back up the 50-mark to 53.4.

It is worth noting that the new export order balance remained below the 50-mark for the third month out of four, implying that most, if not all, of the rebound was centred on the domestic market, noted Lloyds Bank in a research report.

The rebound in domestic conditions were due to new product launches and clients’ appetite to increase shocks, according to Markit. While the latter might reflect clients’ expectations of rebounded future demand, it is possible that some of the rise in orders might be because of clients’ stock-piling in response to Brexit-related supply-chain uncertainties.

These worries were also mirrored in manufacturing companies’ own reaction, where the likelihood of raw material shortages led firms to hoard stock so key factor inputs. The ongoing effect of Brexit continued to be a drag on companies’ sentiment in the future outlook. Still, it is noteworthy that nearly half of the companies surveyed expected output to be higher in 12-months’ time, while only 10 percent forecast a contraction.

“Despite today’s reading, as the manufacturing sector accounts for only around 10% of UK economic activity, the UK’s near-term growth outlook will still be primarily driven by the dominant services sector. The August services PMI is due on Wednesday – where we expect a modest recovery”, said Lloyds Bank.

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