Weaker pound means stronger exports for UK manufacturers

Posted on 24 Oct 2016 by Fred Tongue

Manufacturing output has grown and exports are at the highest figure they have been for two and a half years, according to new data from the CBI.

The latest quarterly CBI Industrial Trends Survey shows that UK competitiveness with the EU is at a record high, with export volumes the strongest they have been for two and a half years.

459 manufacturers were questioned and revealed that competitiveness of UK firms rose at the fastest pace since records began in 2000. The survey also revlead that competitiveness outside of the EU has also risen at its fastest rate since 2009.

The figures for domestic demand grew more modestly, while it was the first time in over a year that export orders have grown. It is expected that demand will remain quite positive over the next three months with exports anticipated to rise further. Domestic growth is also expected to continue to grow, although more modestly. 

Key findings – past quarter:

  • Export orders rose to +8%, the highest balance since April 2014 (+16%).
  • 27% of firms said the volume of output over the past three months was up and 18% said it was down, giving a balance of +9%.
  • 29% of businesses reported an increase in total orders, and 20% a decrease, giving a balance of +9%.
  • 23% of manufacturers said employment numbers were up, and 28% said they were down, giving a rounded balance of -5%: above the long run average (-9%) but the lowest since April 2010 (-12).
  •    20% of firms said they were more optimistic about the general business situation than three months ago, but 28% said they were less optimistic, giving a balance of -8%, an improvement on the previous quarter (-47%). Optimism about export prospects for the year ahead also recovered, (+9%), the highest since April 2014 (+27%).
  • Competitiveness in the EU (+34%) improved at the fastest pace since the question was introduced in 2000. It also rose in non-EU markets (+17%), the highest since April 2009 (+19%).
  • Average domestic prices (+8%) remained above the long-run average (-3%) for a second consecutive quarter, while average export prices stayed flat (+1%).

One of the major concerns to come out of the survey was the low availability of skilled labour, with almost a quarter of respondents saying that the lack of skills could limit output over the next few months.

The number of people employed fell for the first time since 2010 and looks likely to fall further over the coming quarter and optimism in the business situation also fell slightly after a large fall the quarter before.

Rain Newton-Smith, director of Economics, CBI
Rain Newton-Smith, director of Economics, CBI.

Chief economist at the CBI, Rain Newton-Smith said, “Manufacturers are optimistic about export prospects and export orders are growing, following the fall in Sterling. However, the weaker pound is also feeding through to costs, which are rising briskly and may well spill over into higher consumer prices in the months ahead. 

“Meanwhile, firms will be seeking further details on a long-term, industrial strategy from the Autumn Statement that combines sectors and places. Ultimately, all businesses need greater clarity from the Government on the fundamental issues of skills and barrier-free access to EU markets as soon as possible.”

Following sterling’s sharp depreciation, unit costs rose at their fastest pace in three years, and are expected to continue growing at above their long-term average over the quarter ahead. This was accompanied by modest domestic price inflation, as manufacturers sought to pass on some of the cost increase to their customers.

Despite welcome signs of improved export demand and competitiveness, the majority of exporting manufacturing firms have said that the fall in the pound since June has had a negative impact on their business. In a supplementary question asked alongside this month’s survey, 47% of manufacturing firms cited sterling’s depreciation as having a negative impact, against 32% citing a positive impact.