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Brexit preparations boost UK manufacturing sector in December 2018

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Brexit preparations boost UK manufacturing sector in December 2018

The U.K.'s manufacturing sector expanded at a six-month high in December 2018, driven mainly by higher new orders and an increase in stocks purchased in light of Brexit preparations, data from IHS Markit and the Chartered Institute of Procurement & Supply showed.

The seasonally adjusted IHS Markit/CIPS manufacturing purchasing managers' index rose to 54.2 in December 2018 from 53.6 in November 2018.

"Though the overall index figure was higher than last month, this should be viewed with some skepticism," said Rob Dobson, director at IHS Markit, adding: "There is likely to be some correction in the sector this year as Brexit buffer stocks are depleted and overall output could fall."

The inflow of new orders grew at a 10-month high during December 2018, as clients built up safety stocks to mitigate potential disruption from Brexit, manufacturers noted. Stocks of finished goods also increased during the month.

Manufacturers' outlook on the upcoming year remained positive, though Brexit and exchange rate uncertainties weighed on sentiment.

As the U.K.'s manufacturing sector makes up for about 10% of the country's GDP, and with limited warehousing capacity, the latest data might not translate into higher GDP growth, according to James Smith, developed markets economist at ING.