Big surge in British export orders
Weaker pound, stronger global growth support manufacturing sector
THE BIGGEST surge in export orders since 2010 helped British factories last month to recover from a seven-month low, according to a survey yesterday that may temper some of the concerns among Bank of England (BoE) officials about a slowdown in the economy.
Sterling hit its highest level in 10 months against the US dollar, and British government bond prices fell after the Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) rose to 55.1 from a downwardly revised 54.2 in June.
The PMI exceeded the consensus forecast of 54.4 in a Reuters poll of economists.
Supporters of Britain’s decision to leave the European Union have said that sterling’s fall since last year’s referendum will help the economy by making exports more competitive.
However, growth in the first half of this year slowed sharply as consumers felt the pinch of inflation, caused in part by the pound’s fall.
“Sterling’s slide – along with stronger global growth – appears to be providing significant support for manufacturers by boosting external demand,” said Scott Bowman, an economist with Capital Economics.
“In addition, the survey suggests that the peak impact of sterling’s depreciation on manufacturing prices has now passed.”
Although the PMI survey showed that growth in manufacturing output cooled to a four-month low, new orders surged almost to the all-time high hit in April 2010, particularly from abroad, and employment also rose strongly.
EEF, a manufacturing industry association, said the improvement suggested the factory sector’s drag on the economy in the second quarter was likely to be temporary. That ought to hearten BoE policymakers ahead of the announcement on interest rates tomorrow, as should the signs that price pressures are now fading.
Hike not expected
The BoE is expected to keep rates at a record low, although two of the eight sitting members of the Monetary Policy Committee have previously voted for a hike, saying exports will help economic growth.
More important for the BoE will be tomorrow’s PMI for the services industry, which accounts for about 80 percent of British economic output compared with manufacturing’s 10 percent.
IHS Markit’s gauge of factory cost pressures fell for the sixth straight month to its lowest level since the Brexit vote.
“If this trend of milder price pressures is also reflected in other areas of the UK economy, this should provide the BoE with sufficient leeway to maintain its current supportive stance until the medium-term outlook for economic growth becomes less uncertain,” Rob Dobson, an IHS Markit economist, said.
July’s increase in manufacturing activity was driven by consumer goods producers, IHS Markit said.
It remains to be seen how the signs of strength in the factory sector translate in official data, which so far has shown that manufacturing was weak in early 2017. – Reuters
Customers browse a clothing stall in Petticoat Lane market in London. Economic growth slowed sharply in the first half of this year as consumers felt the pinch of inflation, caused in part by the fall in the pound.