British factory output slows, price pressures come off peak
British industrial output grew at the slowest pace in over a year in the three months to July, but there are tentative signs that some challenges around inflation and investment are easing, a Confederation of British Industry survey showed on Monday.
The Bank of England’s Monetary Policy Commitee (MPC) must decide next week whether to speed up the pace of interest rate rises with a rare half-point rate rise to tackle the highest inflation in 40 years.
Surginginflationhasdrivenconsumersentiment to its lowest since records began in the 1970s, but business activity has been slower to weaken.
Monday’s CBI Industrial Trends Survey output balance dropped to +6 for July from +19 in April, its lowest since the three months to April 2021 but still above its long-run average of +2.
“The manufacturing sector has been an economic bright spot in recent months, but output and orders have sotened amid ongoing cost pressures, supply challenges and a generalised weakening in economic conditions both in the UK and globally,” CBI deputy chief economist Anna Leach said.
The monthly CBI industrial orders balance dropped to +8 from +18, its lowest since October but above its long-run average of -13. Quarterly inflation expectations - a key concern for the BOE as it judges how long high inflation will last - dropped sharply to +48 from April’s record high of +71. And wider CBI measure of manufacturers’ optimism improved from a two-year low touched in April but remained below average at -21.
“The combination of flat-lining demand and slowing price growth in the manufacturing sector therefore strengthens the case for expecting the MPC to stick to 25 basis-point hikes at its two meetings in Q3, rather than jumping to 50 basis-point hikes,” Pantheon Macroeconomics’s Gabriella Dickens said.
Investment intentions picked up and are now at or above their long-term average as businesses sought to expand capacity. Uncertainty about demand was cited as being less likely to limit expansion than any time since 1989.
BOE policymakers have been gloomy about Britain’s medium- to long-term ability to meet economic demand, in part because of low investment by international standards. Without higher investment and productivity, higher interest rates may be needed to keep inflation in check, even with limited growth.
Britishindustrialoutputgrewattheslowestpace in more than a year during the three months to July, although there was a slight easing in inflation pressures and a pick-up in investment, a quarterly survey showed on Monday.
The Confederation of British Industry said the output balance in its Industrial Trends Survey dropped to +6 for July from +19 in April, its lowest since the three months to April 2021 but just above its long-run average of +2.
“The manufacturing sector has been an economic bright spot in recent months, but output and orders have sotened amid ongoing cost pressures, supply challenges and a generalised weakening in economic conditions both in the UK and globally,” CBI deputy chief economist Anna Leach said.
The Bank of England has warned that the economy is likely to slow to a crawl this year and next as consumers face the highest inflation in 40 years and many businesses face a squeeze on their profit margins.
Meanwhile the Britain’s commodity-heavy FTSE 100 tracked a decline in oil and mining stocks on Monday as hawkish central banks stoke recession worries, while investors await corporate results from Europe and the United States.
The benchmark FTSE 100 index fell 0.2 per cent in morning trade.
Oil majors Shell and BP declined 1.6 per cent and 1.9 per cent, while miners slipped 0.3 per cent, tracking weakness in commodity prices on fears that an expected US interest rate hike this week will dampen demand.
Energy has been the top performing sector so far this year, up nearly 20 per cent year-to-date, helping UK’S FTSE 100 outperform its US and European peers.
Volatile oil prices, however, have weighed on the index this month with traders weighing the impact of likely interest rate hikes that could cut demand against tight supply due to the loss of Russian oil.
“The FTSE has been more resilient because of its number of big international companies, particularly the big oil and gas companies and the miners which have really made hay, but going forward you really can’t guarantee that is going to be sustained,” said AJ Bell analyst Danni Hewson.
The domestically focussed mid-cap index slid 0.3 per cent.
Travel and leisure stocks dipped 1.2 per cent ater Ireland’s Ryanair said a return to PRE-COVID levels of profitability this year was not certain even as it topped first-quarter estimates.
Sthree rose 2.4 per cent ater posting a 58 per cent surge in its half-year operating profit, supported by strong hiring demand and as people change jobs in a competitive market.
The Boe’s Monet ar y Policy Commitee must decide next weekwhether to speed up t he pace ofinterest rate rises wit h a r ar e half-point rate rise totackle the highest inflation in40 years