U.K. Manufacturing Avoids Contraction in Post-Election Bounce

(Bloomberg) --

U.K. manufacturing output unexpectedly avoided a contraction for the first time since April at the start of 2020, providing further evidence that ebbing political uncertainty is supporting the economy.

IHS Markit said its Purchasing Managers Index for the sector climbed to 50 in January, right at the level that separates contraction from expansion. That’s also an improvement from an initial reading released last week.

Early estimates showed activity across the whole economy surged to the highest since 2018 in the wake of Prime Minister Boris Johnson’s election victory -- a key factor in the Bank of England’s decision to refrain from cutting rates last week.

BOE officials noted that surveys like Markit’s had picked up “quite markedly in some cases” since the December election, which removed much of the near-term uncertainty related to Brexit. Still, they signaled easing may yet be needed soon if the economy loses steam.

Monday’s report showed that measures of new orders and employment improved in January, while confidence levels increased to an eight-month high.

Still, weak overseas demand dragged on growth, while the report noted that “optimism remained low compared to the historical standards of the survey, in part due to ongoing uncertainty at some firms about the impact of Brexit on their businesses.”

Markit is due to publish similar indexes for the U.K.’s construction and dominant services sector later this week. An initial flash estimate put a composite measure for the whole economy at 52.4.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

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