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Manufacturing exports surge but cost pressures continue to build

Manufacturers enjoyed their biggest jump in export growth for six years thanks to a healthy appetite for British goods from non-EU buyers, a report said.

Export orders had lifted by plus 22% in the first quarter of this year - their highest level since April 2011 - despite Brexit-induced cost pressures continuing to bite, according to the Confederation of British Industry (CBI).

The industrial trends survey, which covers 397 manufacturers, said sterling's slump since the Brexit vote had caused unit costs to reach a six-year high in the three months to April.

However, the costs squeeze failed to hold back domestic orders, which rose at their fastest pace since July 2014 at plus 20% over the period.

British manufacturers are enjoying a sweet spot, as the UK remains a member of the European single market while the Brexit-hit pound boosts demand for goods by making them cheaper for overseas buyers.

CBI chief economist Rain Newton-Smith said cost pressures remained at large despite the strong performance from export orders.

"UK manufacturers are enjoying strong growth in demand from customers in the UK and overseas, and continue to ramp up production.

"Exports have surged and firms are at their most optimistic about selling overseas in over four decades.

"Even so, the combination of the weak pound and recovering commodity prices means that cost pressures continue to build, and manufacturers report no sign of them abating over the near-term."

The report showed average unit costs had soared with a reading of plus 45%, while average domestic prices also saw a rapid rise at plus 27%.

Total orders chalked up a reading of plus 25% for the first quarter of this year, while more firms said they were hiring staff, giving a balance of plus 7%.

However, the outlook for business investment over the next 12 months was more gloomy, with investment in machinery and buildings delivering readings of minus 10% and minus 15%.

It found that firms were also marginally more optimistic than three months ago, with a reading of plus 1%.

Howard Archer, chief UK and European economist at IHS Markit, said the survey reveals a "recent robust performance by manufacturers", but said forward-looking indicators point to a challenging road ahead.

"The surveys show strong orders and output over the past three months - with both domestic demand and export orders healthy.

"However, some slowdown in orders growth and output is seen over the coming three months, with a slowdown in domestic demand modestly outweighing expected robust export demand helped by the competitive pound and decent global growth."

It added that total orders for the second quarter are expected to ease back to a balance of plus 14%.

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