UK manufacturing unexpectedly accelerates to four-month high

[LONDON] UK manufacturing expanded at the strongest pace in four months in August, lifted by both export orders and domestic demand.

A measure of factory output rose to 56.9 from a revised 55.3 in July, according to IHS Markit's Purchasing Managers' Index.

That exceeds the 55 forecast by economists in a Bloomberg survey and is well above the 50 level dividing expansion from contraction.

Companies reported the strongest intake of new orders since May, bolstered by the weaker pound. The currency's depreciation also contributed to purchase-price gains accelerating for the first time in seven months, though at a slower pace than seen at the start of the year.

Last year's referendum to leave the European Union sparked a plunge in the UK currency, making exports more competitive as well as driving up the cost of imported goods.

While overall economic growth slowed in the first half as consumer spending stalled, some Bank of England policy makers are calling for an interest-rate increase to keep a lid on above-target inflation.

"The manufacturing economy remains in good health despite Brexit uncertainty," said Rob Dobson, director at IHS Markit.

That "should help support ongoing growth in the economy in the third quarter, which will add fuel to hawkish policy makers' calls for higher interest rates."

The BOE's Monetary Policy Committee voted 6-2 to keep the benchmark rate at a record low last month.

Michael Saunders, who supported an increase, said on Thursday that the risks from Brexit aren't reason enough to hold off on a hike.

All five of the manufacturing PMI subcomponents rose in August.

The rate of job creation was the highest in three years. Manufacturing accounts for about a 10th of the UK economy.

PMI data on services, which make up almost 80 per cent, will be published on Sept 5.

BLOOMBERG