Fall in factory orders offset by exports hitting two-year high, says CBI

Employees work on the Uncle Ben's production line

Manufacturers have reported a fall in orders this month, but the slide has been less than expected after exports rose to their highest level in two years.

A survey by the business lobby group the CBI found that the dive in sterling, prompted by the vote to leave the EU, gave a strong boost to exports of manufactured goods that offset uncertainty in the domestic market.

The survey found that total order books were slightly weaker than in the three months to July, down from a balance of -4 in the three months to July to -5 in August.

But the overall picture was of an industry with orders that remained “comfortably above the long-run average” and with output growth “at a healthy pace”.

The main shadow on the horizon was a concern that rising import costs would squeeze profitability. Average prices that manufacturers expected to charge over the next three months rose to +8 in August from +5 in July, their highest since February 2015.

Paul Hollingsworth, a UK economist at Capital Economics, said the relatively upbeat tone of August’s survey gave another reason to be tentatively optimistic about the referendum’s impact on business.

“The latest survey is another reason to think that the economy should avoid a deep recession,” he said.

The CBI survey is in sharp contrast to the July IHS Markit/CIPS manufacturing index, which shrank at the fastest pace for more than three years.

The steep fall in confidence among manufacturers reported by IHS Markit was credited with helping to persuade the Bank of England on 4 August to add to the already huge monetary stimulus begun after the 2008 crash.

The CBI said export orders improved to -6 from -22, their highest since August 2014. A measure of output expectations for the three months ahead rose to +11 from +6 in July.

“It’s good to see manufacturing output growth coming in stronger than expected, and some signs that the fall in sterling is helping to bolster export orders,” said Anna Leach, CBI’s head of economic analysis and surveys.

“But the pound’s weakness is a double-edged sword, as it benefits exporters but also pushes up costs and prices.”


[Source: The Gurdian]