A closely watched gauge of the U.K. manufacturing sector unexpectedly rose in September in data that will reassure investors about the impact of Brexit just as British Prime Minister Theresa May set out her time-frame for the retreat.
The CIPS/Markit purchasing managers' index for the manufacturing sector jumped to 55.4 in September from 53.4, defying expectations that the indicator would slide as low as 52.1. Any reading above 50 signifies economic expansion and September's figure puts the index at the highest since June 2014.
The flow of indicators from the U.K. across industry and the services sector has been overwhelmingly positive in recent weeks after an initial downturn in the wake of the June 23 Brexit vote. Today's index followed positive PMIs from the U.K. in August, encouraging surveys from the Confederation of British Industry, and news from the Office for National Statistics of strong services sector output in July.
"The rebound over the past two months has been encouragingly strong, and puts the sector on course to provide a further positive contribution to GDP in the third quarter," said Markit's senior economist Rob Dobson of the manufacturing PMI.
Capital Economics U.K. economist Scott Bowman noted that analysts had been expecting the index to retreat after surging at a record pace in August.
He added: "While we previously expected the economy to broadly stagnate and some others expected a contraction in output in Q3, we now think that GDP will expand moderately. Indeed, the survey evidence for the quarter so far and hard data for July - especially the 0.4% monthly rise in the services sector from Friday's release - have beaten expectations. All eyes now turn to Wednesday's services PMI for September, where a positive result would set a strong base for GDP growth in Q4."
Markit said its latest report showed domestic demand was a "prime driver of new business wins while the weaker sterling exchange rate drove up new orders from abroad."
The research group will release its PMI for the U.K. services sector on Wednesday and analysts are looking for a slip to 52.0 from a reading of 52.9 in August.
Despite the strong PMI figure, the pound was recently down 0.63% against the dollar at $1.2890 after Prime Minister May over the weekend said the government will start the formal two-year process of pulling Britain out of the EU by the end of May. She also indicated the U.K.'s ability to control immigration and make its own laws will be more important than retaining access to the single market. A "hard" Brexit is widely seen as more damaging to the economy than a partial separation where the U.K. would retain some of the benefits, as well as obligations, associated with EU membership.
U.K. equities moved higher with the FTSE 100 recently up 1.11% at 6,976.09.