Britain's growth prospects receive boost as factories increase production

The pound rebounded by over 0.5 per cent against the euro and was 0.3 per cent stronger against the US dollar as manufacturing activity grew more strongly than expected last month.

The IHS Markit/CIPS purchasing managers’ index climbed to 56.9 from 55.3 in July – a reading above 50 means expansion – for its second highest level in over three years.

Manufacturing, including Britain’s buoyant car-making industry, makes up about 10 per cent of the UK’s economic output.

The survey showed a pick-up in work for overseas markets, with increased business coming from Europe, the US, China and Australia, as a weaker pound makes exports more competitive.

Sterling recently hit an eight-year low against the euro.

But the prime source of new contract wins was the domestic market.

More workers were taken on as extra output and new orders were reported by large and small manufacturers alike.

Business confidence rose to one of its highest levels in over a year, with more than half of companies expecting output to be higher in a year’s time.

But purchase price inflation rose for the first time in seven months, with nearly a third of companies reporting an increase, which they generally linked to the rising cost of commodities.

IHS Markit director Rob Dobson said: “The data suggest that the manufacturing economy remains in good health despite Brexit uncertainty, and should help support ongoing growth in the economy in the third quarter, which will add fuel to hawkish policymakers’ calls for higher interest rates.”

Ms Lee Hopley at the manufacturers’ organisation EEF, said: “The raft of decent survey data from the sector suggest manufacturing output growth should look better in the second half of this year than it did in the first, but longer term the continued robustness of demand in the rest of the world and the right investment decisions at home to capitalise on it will be key to sustaining this picture.”