Contrary to economists’ expectations for a slowdown, the manufacturing sector enjoyed strong expansion and a rise in orders from home and abroad in the final month of the year.
The report confirmed that the weaker pound had boosted exports since the Brexit vote.
But the pound’s weakness continued to make imports more expensive, adding cost pressures to the sector.
The headline figure on the Markit/CIPS UK Manufacturing PMI report rose to 56.1 in December from 53.6 in November - anything above 50 represents growth. It was the highest reading for 30 months.
Rob Dobson, senior economist at IHS Markit, which compiles the survey, said: “The UK manufacturing sector starts 2017 on a strong footing. The headline Purchasing Managers’ Index hit a two-and-a-half year high in December, with rates of expansion in output and new orders among the fastest seen during the survey’s 25-year history.”
New export business rose for the seventh successive month in December as exports were helped by the pound’s sharp drop against the euro, dollar and other currencies, which makes UK goods cheaper in overseas markets.
The PMI report, which surveys more than 600 companies in the manufacturing sector, found increased demand from the US, Europe, China, the Middle East, India and other Asian markets. There was also a rise in domestic demand.
“A plus point from the December survey was that the expansion was led by the investment and intermediate goods sectors, suggesting capital spending and corporate demand took the reins from the consumer in driving industrial growth forward,” Rob said.
The report showed that employment in the sector rose for the fifth consecutive month in December, with growth accelerating to the fastest in 14 months.
However, costs continued to rise in December and companies were shown to be passing some of the increases on to customers.
The manufacturing sector, which makes up a tenth of the economy, is expected to face a challenging year as energy and material costs remain high and Brexit talks impact consumer and business confidence.
Scott Knowles, Chief Executive at East Midlands Chamber, said: “The latest Markit/CIPS report is even more positive than we would have anticipated. It reinforces what our members have been telling us, which is that the weaker pound has increased overseas demand for ‘Made in the UK’-branded quality products.
“This growth bodes well for the East Midlands, which continues to provide the backbone of British manufacturing and innovation, and offers a secure footing for the start of 2017 and ahead of Article 50 being invoked.
“But we would caution Government that it must not even contemplating resting on its laurels in light of this success and must do all it can to encourage and ensure continued growth across all sectors to ensure UK plc remains the place of choice to do business during and after our exit from the EU.”
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