April data records strong demand at home and abroad that will calm concerns about a Brexit slump in the economy

Britain’s factories enjoyed their fastest growth for three years last month on the back of strong demand at home and abroad, according to a survey that will temper worries about a Brexit-driven economic slowdown this year.

The manufacturing sector, which makes up about a tenth of the UK economy, enjoyed the strongest pick-up in new work since the start of 2014 and smashed expectations in April. Firms also took on new workers at a faster pace and ramped up production, the closely watched Markit/CIPS UK Manufacturing PMI (pdf) showed.

Its main barometer of business activity jumped to 57.3 in April from 54.2 in March. That confounded forecasts for a modest slowdown to 54.0 in a Reuters poll of economists.

A reading above 50 shows growth while one below indicates it is contracting. The measure for manufacturing only briefly fell below that no-change mark in the wake of last June’s vote to leave the EU but then recovered along with readings for the construction industry and the much larger services sector.

The latest manufacturing report signalled that strong demand came from the domestic market as well as overseas, continuing a pattern of export support for UK firms from the weaker pound. Sterling’s sharp fall since the Brexit vote has made UK goods cheaper in foreign markets. But it has also raised the cost of imports.

The survey of more than 600 industrial companies follows official figures last week showing the UK economy slowed markedly in the first three months of 2017 as the effect of higher import costs worked its way through the economy, raising inflation and squeezing consumer spending.

But while some consumer-facing businesses have struggled, manufacturers have reported a boost from the weaker pound and from a recovery in the global economy. PMI surveys published earlier on Tuesday showed eurozone factory growth hit a six-year high in April.

The PMI report’s compilers said strength and demand from North America, Europe, Africa and Brazil were helping UK factories. But they cautioned against reading too much into April’s bounce.

“Although only accounting for 10% of the economy, the upturn in the manufacturing sector represents some welcome good news after the sharp slowing in GDP seen in the first quarter,” said Rob Dobson, senior economist at IHS Markit.

“The big question is whether this growth spurt can be maintained, especially given the backdrop of ongoing market volatility and a number of political headwinds such as elections at home and abroad. Other surges seen since the middle of last year have generally proved short-lived, as weak wage growth sapped consumer spending.”

The report also raised concerns about manufacturers facing shortages of raw materials. That was adding to cost pressures and companies mentioned paying higher prices for a wide range of materials, including chemicals, metals and plastics. But input cost inflation had eased significantly since hitting a record high in January, Dobson noted.

Mike Rigby, head of manufacturing at Barclays highlighted the mixed effects of the weak pound on manufacturers.



“Despite some easing, inflationary pressures will continue to take their toll on factory gate prices and ultimately manufacturers’ margins, however, the weakness in sterling and an improving global outlook continue to provide export opportunities for the sector,” he said.

“What we don’t want to see now is the prospect of fractious Brexit negotiations fostering a more cautious and uncertain approach to investment from the sector.”

Economists are looking ahead to PMI reports from the construction sector on Wednesday and the services sector on Thursday for more clues on how the economy fared last month. Some doubt how far a manufacturing improvement can make up for weaker consumer spending.

Martin Beck, senior economic adviser to forecasters the EY ITEM Club, said: “With ‘the makers’ accounting for little more than 10% of GDP, it will require a strong performance from the sector to compensate for headwinds from inflation and other sources affecting the dominant services sector.”



But Ruth Gregory, UK economist at the consultancy Capital Economics, said: “After last week’s surprisingly downbeat first quarter GDP figures ... today’s survey provides us with optimism that the manufacturing sector should play a bigger role in offsetting the slowdown in the consumer services sector ahead.”