Manufacturing output increased only slightly in August
Manufacturing output recorded modest growth in August, rising by only 0.2% from its level in July. The performance failed to reflect the strong pickup in business sentiment seen in the PMI, which jumped to 53.4 in August after plunging in the immediate aftermath of the EU referendum.
There were large variations across sectors, however. In line with strong fundamentals and long order books, pharmaceuticals and transport equipment saw the strongest growth performance, surging by 2.2% and 2.4% respectively in August. To a lesser extent, mechanical equipment also posted positive growth, up by 0.9% in August, suggesting the recovery from poor demand in the oil and gas industry was under way. By contrast, all other manufacturing sub-sectors contracted in August. While it is too soon to detect a referendum-related impact, it is likely that falling investment intentions as a result of heightened uncertainty post-Brexit is starting to have an impact on capital goods (electronics and electrical equipment) and construction-related industries (e.g. rubber and plastics).
No surge in exports yet
In August, imports of goods surged by 7.5% in value terms compared to July, while exports posted a modest growth at 0.2%. This resulted in a widening of the trade deficit in goods by £2.5bn to £12.1bn in August.
Growth in manufacturing exports accelerated slightly however, posting at 1.4% up from 0.4% in July. The pickup was mainly driven by the surge in exports of intermediate goods (+6,6% in August) while exports of finished manufactures contracted by 1%. This suggests that the trend is likely to be driven by the global recovery in manufacturing, particularly in the Euro area where Germany (+3.3%, m/m) and France (+2.2%, m/m) recorded a sharp increase in manufacturing output in August. This confirms our views that the impact of the Sterling depreciation has been rather muted thus far, while it is likely to materialise over the coming months.