Exporters ‘hoarded’ gains from sterling fall
Firms accused of failing to reinvest or reduce prices Uncertainty over Brexit underlined in ONS figures
Britain’s manufacturing exporters have “hoarded” the gains from last year’s fall in sterling by putting up their prices rather than increasing output and sales.
The Office for National Statistics (ONS) said exporters could have allowed their prices to decline in line with the fall in the pound, making their products more attractive to foreign buyers, but chose to boost their profits instead.
Illustrating the uncertainty following the Brexit vote, which made exporters nervous about expanding production, the ONS analysis shows that firms increased export prices by 12.7% year-on-year in the months after the referendum in response to a 16.9% fall in the exchange rate.
The figures will disappoint Brexit campaigners, who urged exporters to make the most of the fall in sterling by expanding production and increasing employment.
The ONS said export volumes improved last year, despite price increases by exporters, due to the improving global trade situation. But the rise in exports was matched by an increase in imports, offsetting the benefits of higher prices.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said: “Exporters have responded to the pound’s depreciation by raising their sterling prices, with the result that their profits have surged but their goods haven’t become much more competitive.
“Although export volumes have increased, so too have imports; both have been boosted by a rebound in world trade, rather than sterling’s plunge.
“What’s more, exporters have hoarded cash – understandably given Brexit uncertainty – rather than reinvested their bumper profits or dispensed it to shareholders. As a result, sterling’s depreciation has hit consumers hard but it has done little to help the economy rebalance.”
Large businesses were quick to increase their prices in response to the plunge in sterling. Small and medium-sized businesses were not far behind in following the same policy.
ONS analysts said it was difficult to estimate the impact of higher import prices on profits without a more detailed study of the cost of raw materials used by businesses to manufacture goods.
The trade minister, Liam Fox, landed himself in hot water after he accused companies of being too “fat and lazy” to expand exports beyond Europe and their existing customers.
In the wake of the vote last June for the UK to leave the EU, he said it was the duty of exporters to use the currency’s revaluation to expand output. “What is the point of us reshaping global trade, what is the point of us going out and looking for new markets for the United Kingdom, if we don’t have the exporters to fill those markets?” Fox said.
Theresa May, Philip Hammond and several senior cabinet members have joined a succession of trade missions this year to boost trade. May recently visited Japan to prepare the ground for a free trade deal with the world’s third largest economy. Hammond’s most recent trade mission was to India, where he talked to businesses about expanding links across the Indian sub-continent.
Fox’s deputy, Mark Garnier, said last year: “The government has put trade at the heart of its agenda with the crea- tion of the Department for International Trade and we are working hard to help UK companies take advantage of the global demand for British goods and services.”
It will also be seen as a missed opportunity after a rise in sterling over recent months in response to speculation that UK interest rates would increase before the end of the year.
A speech yesterday by one of the Bank of England’s longstanding advocates of low interest rates indicating that a hike is imminent helped increase the value of the pound, which reached its highest level in a year against the dollar, at $1.339.
Gertjan Vlieghe, in comments that largely echoed the message from Threadneedle Street on Thursday, suggested that it could raise rates as soon as its next meeting on 2 November.
Britain continues to suffer from a large trade deficit in manufactured goods despite the slide in the pound and boost to exports, largely as a result of the rise in imports.
The most recent trade figures show that British exporters have struggled to win contracts in new markets beyond the EU’s borders.
Official figures for July showed the UK’s deficit in the trade in goods with nonEU countries widened by £2.4bn, while exports to the EU grew to cut the trade gap by £1.3bn. In the three months to July, the total trade in goods deficit increased by £1.1bn to £34.4bn compared with the previous quarter.
A container ship of goods at Southampton. Imports have risen as well as exports, so the UK economy has not rebalanced Photograph: Matt Cardy/ Getty Images