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UPDATE 1-Weak pound boosts UK exporters, but Brexit weighs on investment -CBI
April 24, 2017 / 11:19 AM / 7 months ago

UPDATE 1-Weak pound boosts UK exporters, but Brexit weighs on investment -CBI

(Adds comment from economist, background, graphic)

LONDON, April 24 (Reuters) - 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 late 2013.

“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 Heavens

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