UK manufacturing activity surprised to the upside in August as business confidence picked up.
The strong survey data confounded expectations for a Brexit-related slowdown and strengthened the hand of those calling for a UK interest rate hike.
IHS Markit´s manufacturing PMI gauge reached a four-month high of 56.9 for August, an improvement on the 55.1 registered for July. Economists had expected August´s figure to come in at 55.0.
The stronger-than-expected reading indicates that UK manufacturing is expanding at a faster pace. August´s 56.9 is the second highest manufacturing PMI reported for the UK in over three years.
According to the Markit survey, production rose at its sharpest rate in seven months as new orders surged. While the domestic market was the main driver, new export orders also gathered pace.
At the same time, the survey detected a rise in business confidence to its highest level in three months.
The data appears to support the case for a UK interest rate rise.
According to the Markit survey, purchase price inflation accelerated for the first time in seven months during August, with over a third of companies reporting rising purchase prices.
This week, Bank of England policymaker Michael Saunders claimed a ‘modest’ increase was essential to control UK inflation, despite admitting that Brexit uncertainty was hurting consumer confidence.
Markit said the breadth of expansion made it look more likely that UK manufacturing would continue to grow over the second half of the year.
“The manufacturing economy remains in good health despite Brexit uncertainty, and should help support on-going growth in the economy in the third quarter, which will add fuel to hawkish policymakers’ calls for higher interest rates,” said Rob Dobson, Director at IHS Markit.
While remaining elevated, UK inflation unexpectedly eased from 2.9% to 2.6% in July.