The U.K. manufacturing PMI recovered in September after the fall seen in the prior month to a seven-year low. The PMI index rose to 48.3 in September from August’s 47.4. Market expectations were for a further fall to 47. In spite of the rise, the headline balance remained below 50 for the fifth straight month and did little to change the view that the U.K. manufacturing sector was feeling the effects of several headwinds, both domestic and international, said Lloyds Bank in a research report.
Delving into detail, most of the rise in the headline measure was driven by the new orders balance that rose to 46.4 from 44.4, and a rise in stocks of purchases index that rose to 53.6. The move in the latter implies that companies might be stockpiling ahead of a possible no-deal Brexit in advance of the 31 October deadline. Nevertheless, the fact that new orders continued to contract, albeit at a slower rate than the month before – along with the other sub-components staying below 50 – points to manufacturing activity contracting by about 1.5 percent in the third quarter.
In the absence of a pick-up in final demand, the prospects for manufacturing activity rest heavily on companies’ perception of the Brexit outlook. A resurgence in Brexit-related anxiety might see companies step up their preparations, which might give a further temporary boost to the sector.
“However, from a broader perspective, a more robust recovery would most likely require greater certainty over the longer-term outlook and some stabilisation in the global trade outlook. With the manufacturing sector accounting for ~10 percent of UK GDP, the focus in terms of the wider economy now shifts to the construction and services PMI releases”, added Lloyds Bank.
