Britain’s manufacturers increased production at the fastest pace in seven months in August, taking on more workers to keep up with strong demand from home and abroad.
The closely watched Markit/Cips UK Manufacturing PMI barometer of factory sentiment showed activity jumped to 56.9 last month from 55.3 in July, the second-highest level in more than three years.
That confounded forecasts for a modest slowdown to 55.0 in a Reuters poll of economists and was well above the 50 mark that separates growth from contraction.
The weak pound, having plunged after the Brexit vote, was reported to have boosted competitiveness for British products. Still, the domestic market was the prime source of contract wins for the manufacturing sector, despite robust demand from mainland Europe, the US, China and Australia.
The jump in production was underpinned by faster intakes of new work, which filtered through to the labour market as the number of jobs grew for the 13th straight month. However, almost 31% of companies said they experienced an increase in the price of materials required for their operations, generally linked to the rising cost of commodities.
Despite the strong performance in August, there may be trouble brewing. The survey of more than 600 industrial companies found potential raw material and staff shortages could lie ahead, which would hit the pace of production in future and lead to higher costs.
Rob Dobson, a director at IHS Markit, which compiles the survey, said: “At the moment, the survey data suggests the manufacturing economy remains in good health despite Brexit uncertainty, and should help support ongoing growth in the economy in the third quarter.”
Still, the survey provides a snapshot of the UK economy before official figures are released later in the year, meaning the expectations for faster growth may fail to materialise.
Manufacturing contracted by 0.6% in the three months to June, despite the PMI data pointing to an expansion of about 0.5%, according to Andrew Wishart, a UK economist at the consultancy Capital Economics.
However, he said the survey results “add weight to our view that the sector will put a disappointing first half to the year behind it. We expect the manufacturing sector to help overall GDP growth to accelerate in the second half of 2017.”
The upbeat survey could give credence to policymakers calling for the Bank of England to raise interest rates to offset higher inflation, arguing the economy is now strong enough to handle tighter monetary conditions. Michael Saunders, one of the two dissenting Bank of England rate-setters to vote for a rise last month, made another call to raise rates in a speech in Cardiff on Thursday.
The survey reflects activity in a sector that contributes about 10% to GDP, although uncertainties remain in other areas. Consumer spending is under pressure as higher prices and weaker wage growth squeeze their purchasing power, while caution has been recorded among businesses considering investments in the British economy, amid political and Brexit uncertainties.