Ex­porters ‘hoarded’ gains from ster­ling fall

Firms ac­cused of fail­ing to rein­vest or re­duce prices Un­cer­tainty over Brexit un­der­lined in ONS fig­ures

The Guardian - - FINANCIAL - Phillip In­man

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

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