he pound surged more than a cent against the dollar today as a key survey showed Britain’s manufacturers staged their sharpest rebound on record in August.
Sterling jumped 1.2 cents to $1.3249 and gained ground against the euro.
The closely watched Markit/CIPS manufacturing survey, which measures activity in factories, jumped from a 41-month low of 48.3 in July immediately following the referendum vote to a 10-month high of 53.3 in August.
The five-points leap in the index is the highest recorded in Markit’s 25 years of measuring the state of the UK’s manufacturing industry.
It shows a remarkable recovery in activity within weeks of Britons voting to leave the European Union.
Manufacturers said the 10% fall in the pound against the dollar and the euro was by far the biggest factor in the upturn in export demand.
Economists had been predicting a modest rise in the index to around 49, with any measure below 50 indicating manufacturing was still in decline.
“Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual,” Markit economist Rob Dobson said.
“The domestic market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business from the USA, Europe, Scandinavia, Middle East and Asia.”
On the stock market, the FTSE 100, which is dominated by dollar earners, was up 20.95 to 6802.46 and the more UK-oriented FTSE 250 rose 112.99 to 17,845.76.
“This suggests that the UK economy is weathering the Brexit storm remarkably well,” ING economist James Knightley said.
“The plunge in sterling is boosting the UK’s competitiveness, which is helping to support export orders, while the aggressive stimulus from the Bank of England and the smooth transition of political leadership has also helped calm immediate fears for the economy.”
Paul Hollingsworth, economist at Capital Economics, said the figures should be taken “with a pinch of salt, as it could well be an overreaction the other way” following July’s sharp drop in manufacturing activity.
Analysts also pointed out that the boost to exports from the falling pound has a flipside in that it fuels inflation. Manufacturers reported the highest rise in input costs for five years and said they were increasing their own prices at the fastest rate since 2011.