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Boost for export orders as pound slumps in wake of Brexit vote

Published 23/08/2016

Manufacturers enjoyed unexpectedly strong export orders last month as the value of the pound fell
Manufacturers enjoyed unexpectedly strong export orders last month as the value of the pound fell

Britain's manufacturers have seen export orders reach a two-year high thanks to the plunge in the value of the pound following the Brexit vote, a report has said.

The CBI Industrial Trends Survey said export orders reached their highest since August 2014, hitting minus 6 this month, up from minus 22 in July.

Total orders came in above expectations, dropping to minus 5 in August, down from minus 4 in July, but above economists' predictions of a fall of minus 10.

The report said the slide in sterling appeared to be fuelling stronger overseas demand, with chemical manufacturers accounting for more than half of the rise in orders.

However, it added price expectations for three months ahead rose to its highest level since February 2015, triggered in part by the rising cost of raw material following the fall in the UK currency.

Anna Leach, CBI head of economic analysis and surveys, said the pound's weakness was proving a "double-edged sword", helping exports but pushing up costs and prices.

She added: "The most significant effects of the vote to leave the EU will flow over the medium- to long-term.

"Therefore, firms need to see ambitious decisions in the Autumn Statement that will secure the UK's economic future as changes to trade, regulation and access to skills loom on the horizon."

The survey of 505 firms found that average price increases in the three months to November hit plus 8 in August, up from plus 5 in July.

It said manufacturers producing coke and petroleum had the highest expectation of output price inflation for the next three months, while printers and publishers are expecting prices to fall the most.

It added that the measure of output expectations for the three months ahead was plus 11 in August, rising from plus 6 the month before.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, urged caution over the data, but said it suggested that rising export orders were helping to "cushion the blow" from a slump in UK demand.

"Official trade data show that previous sterling depreciations have taken at least a year to bear fruit, because it takes time for contracts to be renegotiated and for exporters to invest in extra capacity," he added.

"Even if the CBI's export orders balance is right, the total - domestic plus export - orders balance only is consistent on past form with stagnation in manufacturing output.

"Domestic demand is fading as manufacturers pass on higher import costs to domestic customers."

The UK manufacturing industry continued to decline in June, falling by 0.3%, but stepping up from a 0.6% contraction in May, according to the Office for National Statistics.

However the latest PMI survey for the month after the Brexit vote showed the manufacturing sector slumped to its lowest level in more than three years, putting pressure on UK economic growth.

Howard Archer, chief UK and European economist for IHS Markit, said the CBI survey provided hope that UK gross domestic product would continue to grow in the third quarter.

"Third quarter growth hopes have been lifted by robust retail sales in July and the CBI survey suggests that manufacturing output could hold up better than had been feared," he added.

"Nevertheless, there are some serious dangers lurking for the manufacturing sector following the Brexit vote.

"Much could depend on how much the boost to foreign orders from the substantially weakened pound counters likely increasingly pressurised domestic demand for capital goods and big ticket consumer items."

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