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Eurozone manufacturing 'wavering', British manufacturing rebounds

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Eurozone manufacturing 'wavering', British manufacturing rebounds

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Manufacturing growth in the eurozone slowed in August according to the latest surveys of the region’s businesses.

Germany, the Netherlands and Austria again provided most of that expansion.

There were declines in France and Italy, while Greece stagnated.

Spain and Ireland saw their worst growth in three years.

Markit – the firm which compiles the survey results from thousand of companies – predicts further weakness in September thanks to a slowdown of new orders.

It blames that partly on reduced sales to Britain by eurozone firms following the UK’s vote to leave the European Union.

“Eurozone manufacturers reported a wavering performance in August, with signs that growth could slow further in coming months,” said Chris Williamson, Markit’s chief economist.

“There is some suggestion of a Brexit impact … and growth may wane further in September after new orders growth slipped to a one-and-a-half year low.”

UK manufacturing rebounds

By contrast, British manufacturing staged one of its sharpest rebounds on record in August.

That came as factories recovered from the initial shock of June’s EU referendum vote

There was a boost to exports from the pound’s post-Brexit slump against other currencies.

Data over the past couple of weeks have shown consumer demand held up in the face of the referendum result.

But Thursday’s survey suggests manufacturing, which accounts for 10 percent of Britain’s economy, is also weathering the initial impact of the vote better than feared.

Markit said companies had reported restarting work which they had put on hold in July, as their clients saw business starting to return to normal.

“The domestic market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business,” Markit economist Rob Dobson said.

Can it last?

The EEF trade body, which represents manufacturers, said the strength may not be sustained.

“Manufacturers … appear to have their mojo back in August,” EEF chief economist Lee Hopley said. “But the heightened volatility in the indicator in the last couple of months still raises questions about whether sentiment has overshot somewhat and … some moderation is likely.”

In the longer run, Britain’s access to European export markets remains uncertain. Prime Minister Theresa May’s new government has not said when it will start formal talks to leave the EU and has given no detail on whether it would allow unlimited EU migration in return for continued easy trade access – a likely demand of other countries in the bloc.

Inflation worries

The flip side of the short-run boost to exports from a weaker currency are signs of rising inflation pressure.

Manufacturers taking part in the survey reported the biggest rise in input costs in more than five years, as the weaker pound made it more expensive to import raw materials.

Companies said they were also raising the prices they charged customers at the sharpest rate since mid-2011.

The UK central bank – the Bank of England – expects higher inflation and lower living standards to be one of the main costs for households from the vote to leave the EU, outweighing the trade gains that come from a weaker currency.

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