UK manufacturing rebounds to 10-month high

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London (AFP)

Britain's manufacturing activity hit a 10-month high in August, rebounding strongly from a slump triggered by the country's vote in favour of exiting the European Union, data showed Thursday.

A slump in the pound caused by longer-term Brexit fears lifted export orders last month, according to the closely watched IHS Markit UK Manufacturing purchasing managers' index.

The PMI hit 53.3 in August, up from 48.3 in July which was a 41-month low.

Analysts' consensus forecast had been for a reading of 49 in August, just below the 50 mark that indicates growth.

"This leaves the index at its highest level since last October and suggests that the UK economy is weathering the Brexit storm remarkably well," said ING bank economist James Knightley.

"Nonetheless, the risks of recession have not disappeared," he added, pointing to "surveys still suggesting a significant pullback on hiring and investment".

Rob Dobson, senior economist at research group IHS Markit, said "the August PMI data indicate a solid rebound in the performance of the UK manufacturing sector from the steep downturn that followed the EU referendum".

He added: "Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual.

"The domestic market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business from the USA, Europe, Scandinavia, Middle East and Asia."

The pound hit 31-year lows against the dollar after Britain voted to leave the EU in a June referendum and has struggled to recover following the Bank of England's decision to cut its key interest rate to a record-low 0.25 percent.

Despite Thursday's surprisingly strong manufacturing data, the BoE and analysts expect Britain's economy to struggle in the coming months as the government negotiates its exit from the EU.

New Prime Minister Theresa May wants to control immigration from the EU while retaining strong trading ties, despite warnings from other nations that single market access is incompatible with limits on the free movement of people.

Britain's vote in favour of Brexit prompted the resignation of May's predecessor David Cameron, who led the campaign to remain in the 28-nation bloc.

"All in all, the upward surprise in the latest UK manufacturing PMI survey should further ease market worries of an imminent recession," said Nick Stamenkovic, a strategist for RIA Capital Markets.

"Still, it is premature to suggest that the worst is over for the UK economy. Indeed the impact of Brexit is expected to be a 'slow burner'."