(Adds comment from economist, background, graphic)
LONDON, April 24 British factories saw their
strongest export orders in six years in early 2017, helped by
sterling's fall after the Brexit vote, but they are also scaling
back on investment plans, a survey showed on Monday.
The Confederation of British Industry's quarterly measure of
manufacturing showed how last year's referendum decision to
leave the European Union has helped and hindered companies.
UK producers enjoyed the biggest increase on record in their
competitiveness in non-European Union markets in the three
months to April. Domestic orders were buoyant too, rising at
their fastest pace in nearly three years.
But the weak pound was pushing up prices and unit costs rose
at their strongest rate in six years.
Furthermore, the CBI said companies reported their weakest
plans for investment in plant and machinery since mid-2011, when
Britain's economy was still struggling with the hangover from
the global financial crisis.
The world's fifth-biggest economy looks set to slow this
year as high inflation eats into the spending power of consumers
and pushes up prices for businesses. Furthermore, companies are
expected to hold back on investment while the country's future
relationship with the EU is negotiated over the next two years.
"We believe that the challenges facing the manufacturing
sector are picking up and will likely to intensify as the year
progresses," Howard Archer, an economist with IHS Markit, said.
Bank of England Deputy Governor Ben Broadbent warned last
month that the current "sweet spot" for manufacturers might not
last because the Brexit negotiations were likely to result in
less access to the EU's single market - or a generous deal which
would push up sterling's value.
The CBI's monthly balance of manufacturing output eased back
to +4 in April from +8 in March with expectations for the next
three months slipping to +16 from +36 - the sharpest drop since
"UK manufacturers are enjoying strong growth in demand from
customers in the UK and overseas, and continue to ramp up
production," Rain Newton-Smith, the CBI's chief economist, said.
"Exports have surged and firms are at their most optimistic
about selling overseas in over four decades. Even so, the
combination of the weak pound and recovering commodity prices
means that cost pressures continue to build, and manufacturers
report no sign of them abating over the near-term."
The CBI said its quarterly survey was conducted before
British Prime Minister Theresa May announced her plan for a
national election on June 8.
(Writing by William Schomberg; Editing by Andy Bruce and Andrew