Big surge in Bri­tish ex­port or­ders

Weaker pound, stronger global growth sup­port man­u­fac­tur­ing sec­tor

The Star Early Edition - - BUSINESS REPORT INTERNATIONAL - Andy Bruce

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

PHOTO: BLOOMBERG

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.

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