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Factory Production Rises as Recovery from Lockdown Continues

The UK’s return to normal from the Covid-19 pandemic continues, with the latest signs of recovery coming from the manufacturing sector. In line with factories across the planet, British manufacturing firms saw their activity increase in August.

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The numbers come from the UK manufacturing PMI update that was issued by Markit. They revealed a rise from 53.3 up to 55.2 in August. Any figure over 50 reflects growth in the sector.

In fact, it was revealed that output increased faster than it has done at any time in the last 6 years, as companies get back to work. The new work includes new orders that have been received at an increasing pace since lockdown restrictions were eased. Backlogs have dropped and there appears to be a degree of spare capacity to allow firms to take on fresh orders.

This positive news was based on a strong performance across most of the sector. The best progress was noted in the intermediate goods category, while the investment goods producers reported the least impressive numbers. Many businesses in this industry are still relying on collection agency services until further improvements are observed.

Less positively, it has also been reported that factories in the UK are still cutting staff numbers. August was the seventh successive month with job losses reported in manufacturing. This has seen employment in the industry drop in one of the sharpest declines in over a decade.

Rob Dobson is a director at IHS Markit. He pointed out that the recovery was “led by an upturn in domestic demand”, and that exports seemed to be picking up too. Dobson said that optimism in the business world is “encouragingly robust”.

Across Europe, good manufacturing growth was also reported in Germany and Italy. Yet, in Spain and France the recovery seems to have stalled slightly. Further afield, China has seen its factories increase their output at the fastest rate since 2011.

What Has the Reaction Been Like?

The Pound continued to gain ground on the US Dollar, although it dropped back slightly once it was revealed that the manufacturing PMI had been revised downwards from the initial 55.3.

The share market has also reacted relatively positively to the latest news, with the expectation of an increase to the existing financial stimulus programme perhaps more important in this than the PMI numbers. Overall, the troubled banks and travel companies stopped the FTSE 100 from progressing much.

In Germany, officials think that the latest numbers show the economic slump following Covid-19 won’t be as harsh or as long-lasting as had been feared. They now think that the country’s GDP will drop by 5.8% in 2020.

This would be Germany’s worst economic performance since the end of World War Two, but it is better than the 6.3% decline that was originally estimated. A slower recovery in 2021 is also now expected, with a 4.4% increase in GDP instead of the 5.2% that was previously mentioned.

German economy minister Peter Altmaier stated that right now they are “dealing with a V-shaped development”. However, he pointed out that it will be 2022 before the country regains the growth lost in the first half of this year.