British Manufacturing Sector Expands Most In 5 Months

The British manufacturing sector logged a moderate improvement in June, driven by solid acceleration in new work and output, results of a survey, which received almost all responses ahead of the "Brexit" vote, showed Friday.

The Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index rose to 52.1 from a revised reading of 50.4 in May, its highest level since January, Markit Economics said. Economists had expected a score of 50.1.

The survey was carried out between June 13 and 27 and Markit Economics said almost all the responses included in the final index readings were received prior to June 23rd's "Brexit" referendum.

In a surprise historic move, Britons voted 52 percent to leave the EU in the referendum, triggering political and financial market chaos.

"Whether this growth recovery can be sustained will depend heavily on whether the current financial and political volatility spills over to the real economy," Markit Senior Economist Rob Dobson said.

"While the Bank of England remains poised to act if needed and the UK's trading relationships are unchanged during the two-year negotiation period, there's a clear risk that ongoing uncertainty will have at least some short term impact on manufacturing during the coming quarters."

The big question is whether any negative impact from uncertainty can be partly offset by a boost to exports resulting from the fall in the pound, Dobson added.

The recent plunge in the pound of nearly 10 percent due to "Brexit" is widely expected to cushion any negative impact from the event. However, losing access to the single market and several free trade agreement could cost the U.K. heavily in the long run.

In short, then, the U.K.'s meagre manufacturing sector, which accounts for just 10 percent of GDP, is not going to prevent the overall economy slipping into recession, Samuel Tombs, an economist at Pantheon Macroeconomics, noted.

The survey showed that output increased at a faster pace in June, underpinned by a solid acceleration in inflows of new work. The increase in new orders was the fastest since last October.

Employment remained negative in June. Job losses were registered for the sixth straight month.

Average input costs increased for the second successive month in June. Consequently, there was a mild increase in selling prices, as manufacturers passed on higher costs.