UK manufacturing exports orders highest in 2 years

British economy suffers little immediate Brexit hit, tests to come

LONDON, Aug 23, (RTRS): Orders for British manufacturing exports hit a twoyear peak in August following a Brexitinduced fall in sterling, as the weaker pound also pushed up price expectations to their highest in over a year, a survey showed on Tuesday.

The Confederation of British Industry said its measure of overall factory orders dipped slightly in August to -5. But that beat a median forecast of -9 in a Reuters poll of economists, and export orders improved to -6 from -22, their highest since August 2014.

Manufacturers were more optimistic as output expectations for the next three months rose to +11 from +6 in July.

Supporters of Britain’s departure from the European Union have argued that a post-referendum decline in sterling was likely to help the economy, while opponents say the outcome of the June 23 vote could tip the country into recession.

Economists cautioned against reading too much into the CBI survey.

Samuel Tombs, at Pantheon Macroeconomics, said export orders had jumped in August in the past two years only to fall back in September, and the overall reading from manufacturing was consistent with stagnation in output.

Allan Monks at JP Morgan said the survey suggested the economy was set for a sharp slowdown but not a recession. Anna Leach, CBI Head of Economic Analysis and Surveys, said stronger-than-expected manufacturing output growth and some signs that the fall in sterling was helping to bolster export orders were positives.

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

The CBI said 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.

The survey reinforced recent data showing inflation gathering pace after Brexit, highlighting the challenge the Bank of England might face in trying to stimulate the economy while price pressures pick up.

Separate data on Tuesday added to signs that consumers have shrugged off the outcome of the referendum, at least for now.

Grocery sales in Britain saw their fastest rise since March, according to industry data, while British housebuilder Persimmon said it had seen a jump in reservations by buyers of new homes over the last two months.

Data published last week showed retail sales jumped in July.

However, Brexit is expected to hurt consumer spending over time as the economy slows, inflation picks up and uncertainty over Britain’s relationship with the EU weighs on investment and hiring decisions.

Meanwhile, two months after Britain decided to leave the European Union, consumers seem to have taken the result in their stride but there are some signs that the challenge for the economy has barely begun.

Below is a summary of various measures of the economy’s performance since the country voted to leave the EU on June 23:

Shoppers shrugged off the Brexit shock in July, according to official data. Retail sales jumped by much more than expected as warm weather boosted summer clothing sales and overseas buyers took advantage of a cheaper pound.

Retailers Tesco, Next and John Lewis say they have not been affected so far by the referendum result. The British Retail Consortium also said spending in shops bounced in July, while grocery sales edged up in the 12 weeks to Aug. 14 and new car registrations were flat in July.

But the impact from Brexit on consumer spending is expected to take time to appear. The Bank of England has more than halved its forecasts for household spending over the next two years in light of the vote to leave the EU, one of the reasons it cut interest rates and announced more stimulus measures this month.

British consumer morale saw its sharpest drop in more than 26 years and house prices also broadly fell following the vote. But one survey showed households in August recovered from a loss of confidence about their finances.

For now, the labour market has shown little sign of a Brexit hit, with the number of people claiming unemployment benefit in Britain unexpectedly falling in July and only a small fall in the number of job vacancies.

But Britain’s decision to leave the EU, and the long period of uncertainty that will ensue, could curb business investment and result in some companies, in particular in financial services, moving headquarters or jobs elsewhere in Europe.

Lloyds Banking Group, said in July it would axe a further 3,000 jobs and close an additional 200 branches to cushion against a more testing economic environment caused by Britain’s vote to quit the EU.

By contrast, online retailer Amazon said last week it would create 1,500 new jobs in 2017 in Britain.

A slower economy could cap wage growth, which together with higher inflation, would eat into consumers’ spending power.

Price pressures in factories - which feed through into consumer prices jumped in July, reflecting the post-Brexit slump in the pound.

Import prices rose at their fastest rate since late 2011 and overall input prices paid by manufacturers saw their biggest annual rise in three years.

Consumer price inflation, which has been below the boe’s 2 percent target for two-and-a-half years, edged up to 0.6 percent in July. The boe has raised its inflation forecasts for 2018 and 2019 further above its 2 percent target.

Business activity surveys published earlier this month suggested the economy contracted at its fastest rate since the financial crisis in July.

The boe cited the PMI surveys as it launched its stimulus programme. However, some economists say the surveys probably reflected the political chaos in Britain in early July which has eased after Theresa May took over as prime minister.

A first survey of the manufacturing sector in August published on Tuesday showed the strongest export orders in two years, helped by the Brexit-related fall in sterling, but demand at home was weak.

Business investment will be a key indicator of how industries cope with the fallout from the referendum. A reading of business investment is due on Friday but covers the second quarter so mostly the period before the June 23 vote.