UK investment bank Peel Hunt have an upbeat take on the UK economy, saying there are three reasons for optimism: healthy balance sheets in the private sector; improving economic fundamentals; and stable politics.

In a new research note, they say:

• The UK positioned for a protracted period of above-average growth, benefiting from increasing business investment, improving consumer demand, stabilising inflation and lower interest rates.

• The new government not only brings political stability and clarity, but also has a firm growth agenda. This is evident from the Pensions review and the FCA’s competitiveness review, which we see as the start of a comprehensive change in approach.

• The mood change in the UK is palpable, which should bring stronger earnings growth and increased investor appetite.

NeoEnergy, an independent oil company operating in the North Sea, has decided to scale back its investment in the area – blaming recent tax rises.

NeoEnergy says the UK government has announced “a number of measures” in recent weeks which have materially increased the level of uncertainty in the UK’s oil and gas sector.

These include a consultation on new environmental guidance in relation to oil and gas projects, which won’t conclude before spring 2025, and plans to raise the windfall tax on North Sea producers from 35% to 38%.

Neo says:

Against this uncertain backdrop, NEO and its 100% owner HitecVision, have taken the decision to materially slow down investment activities across all development assets in its portfolio.

This will affect the Buchan Horst redevelopment, off the coast of Aberdeen.

Labour have also pledged to end new North Sea exploration licences.

August brought solid growth for UK manufacturers despite ongoing export challenges, reports Mike Thornton, national head of manufacturing at RSM UK:

“The manufacturing PMI saw solid growth in August increasing to 52.5, the highest level since June 2022. This upward trend, combined with an increase in the employment index to 52.5, signals real confidence as businesses invest in resource and capacity in expectation for a strong pipeline of work.

The backlogs of work index has recovered and reached an equilibrium between demand and output. As output has been increasing month on month since the start of the year, albeit with some slight monthly fluctuations, the overall trend demonstrates the sector’s recovery is driven by new orders coming in, rather than running through backlogs of work.

However, this demand is coming from domestic markets, as new export orders have ticked down sharply, which could be due to geopolitical tensions, shipping challenges, and a downturn in activity in key markets, including the Eurozone and China.”

Boudewijn Driedonks, partner at McKinsey & Company, points out that the UK’s factory sector is doing rather better than its eurozone counterparts (as covered earlier):

“UK manufacturing expanded for the fourth consecutive month. The rise to 52.5 on the S&P Global PMI is a bullish sign for UK GDP, as it hits its fastest rate of growth in over two years. Underlying results show that strong domestic demand and destocking compensated for weak demand from overseas, including the Eurozone and China.

And, that business confidence has increased. This month’s results also provide good news for job creation, which showed an increase. Less positively, input prices are still on the rise, as are output prices, although this is somewhat easing”.

“The Eurozone’s trend is quite the contrary, with opposite results on virtually all dimensions except for inflation. Manufacturing in August remained under pressure with the Eurozone PMI staying steady at 45.8, continuing its contraction. It was a story of two tales with Greece, Spain and Ireland showing growth and Italy virtually holding steady, whilst its two largest manufacturing hubs, France and Germany, both suffered setbacks to drag down the Eurozone as a whole. France saw a 7-month low, and Germany saw a 5-month low.

Britain’s manufacturing sector grew at the fastest pace in over two years in August, new data confirms.

The UK manufacturing PMI, which tracks activity across the sector, has hit a 26-month high last month.

The recoveries in output, new orders and employment continued in August, data provider S&P Global reports, lifting the PMI to 52.5 in August, up from 52.1 in July (and matching the flash estimate from mid-August).

Manufacturers also benefitted from easing price pressures, with the rates of inflation in input costs and selling prices both slowing.

Activity was driven by higher domestic demand, while new export orders decreased for the thirty-first consecutive month.

The report suggests that the UK manufacturing sector boosted economic growth last month, despite concerns that the recovery is slowing after a strong first half of the year.

Rob Dobson, director at S&P Global Market Intelligence, explains:

The upturn is broadbased across manufacturing, with the investment goods sector the stand-out performer.

The upturn continues to be driven by the domestic market, which is helping to compensate for lost export orders. The trend in export orders a key cause for concern, with new business from overseas having fallen continuously since early in 2022.

UK manufacturers are experiencing difficulties in securing new contract wins overseas due to weaker demand from Europe, a slowdown in mainland China, freight delays, competitiveness issues, high shipping costs, global conflicts and political uncertainty.

Many of these issues are also impeding imports which, while benefiting domestic suppliers, is causing supply chain-related production constraints as witnessed by a further marked lengthening of supplier delivery times.

Just in: Eurozone manufacturing remains in contraction, weighed down by Germany and France.

The latest healthcheck on the eurozone’s factory sector confirms that activity continued to contract in August.

The HCOB Eurozone Manufacturing PMI, has come in at 45.8 in August, for the third month running. Although it’s slightly higher than the ‘flash’ reading of 45.6, it shows the sector contracted again.

Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says:

“Things are going downhill, and fast. The manufacturing sector has been stuck in a rut, with business conditions worsening at the same solid pace for three straight months, pushing the recession to a gruelling 26 months and counting. New orders, both domestic and international, are slowing down even more, dashing any short-term hopes for a rebound.

Adding insult to injury, input prices have been creeping up again since June. There is a silver lining insofar as companies managed to pass some of these higher costs onto their customers in August.

France’s manufacturing PMI hit a seven-month low, while Germany’s was the lowest in five months.