Data showed that improved demand in the UK and from overseas – the latter getting a tailwind from the continuing weakness of sterling following June’s Brexit vote – were the key drivers.
The latest manufacturing purchasing managers’ index (PMI) from Markit and the Chartered Institute of Procurement & Supply (Cips) rose to 56.1 in December, up from 53.6 in November. Any figure above 50 signifies expansion.
It means headline PMI has expanded in each of the past five months, while new export business rose for the seventh consecutive month.
Rob Dobson, senior economist at IHS Markit, said the rates of expansion in output and new orders was “among the fastest seen during the survey’s 25-year history” and meant the manufacturing sector had started the new year on a “strong footing”.
He said the latest survey was signalling a quarterly pace of manufacturing growth of 1.5 per cent in the final three months of last year, which was “surprisingly robust” given the lacklustre start to 2016 and the uncertainty surrounding the EU referendum.
After the Brexit vote sterling fell to 31-year lows against the US dollar. Dobson said: “The boost to competitiveness from the weak exchange rate has undoubtedly been a key driver of the recent turnaround, while the domestic market has remained a strong contributor to new business wins.”
He added that another plus was that expansion was spearheaded by the investment and intermediate goods sectors “suggesting capital spending and corporate demand took the reins from the consumer in driving industrial growth forward”.
The Markit survey also said employment in manufacturing – about 12 per cent of the UK economy – rose for the fifth consecutive month in December. That was the fastest in 14 months, with small and medium-sized businesses leading the way on recruitment.
David Noble, group chief executive officer at Cips, said: “The stimulus for growth came from new order wins in both domestic and overseas markets.
“The rates of growth remained marked, while new export orders were boosted by the sustained weakness of the pound. Some respondents commented on an increase in orders from India, China, the US and EU.”
Noble added that the “fizz” in new orders signalled good news for manufacturers that had previously been hit by uncertainties following the EU referendum, “and the sector looks set to reach a more robust growth path at the start of 2017”.
The manufacturing industry’s strong finish to 2016 helped the stock market close at a new record high yesterday on the first trading day of the year.