UK factory output very near early 2020 level, PMI shows

Manufacturing sector activity in the UK slowed by a bit more than anticipated last month, but output was now very close to the levels seen at the start of 2020, although that might not last for too long.

IHS Markit's factory sector Purchasing Managers' Index slipped from August's two-and-a-half year high of 55.2 to 54.1 in September (preliminary: 54.3).

It marked the fourth consecutive reading consistent with growth in the sector

According to Ian Shepherdson at Pantheon Macroeconomics, production was being buoyed by the backlog of orders from the second quarter and the reopening of other countries from lockdowns.

Hence the jump in the subindex for export orders to a two-and-a-half-year high in September and demand was likely to remain "strong" over the fourth quarter if a Brexit deal materialised at the last minute.

Indeed, for the time being, clients in the European Union had an incentive to stockpile UK-made goods just in case.

"Nonetheless, we expect production to trend down over the next six months, as demand from companies for investment goods declines. Surveys of corporate investment intentions remain extremely weak, consistent with capital goods production falling back once again.

"Manufacturers' decision to reduce employment further in September, albeit at the slowest rate since February, suggests that they also sense production will not sustainably return to pre-Covid levels soon."