UK manufacturers order books have swelled in the first three months to February as the weaker pound boosted output, the Confederation of British Industry (CBI) have said. However, they warned that the weaker pound has boosted expectations of factory gate prices to an almost six year high.
The survey found that order books improved considerably for the fourth consecutive month over the quarter, hitting the highest level in two years. This renewed order strength was driven by mechanical engineering and metal products businesses like ours, who produce stainless steel welding fittings. Indeed, optimism surrounding production across the sector was found to be at its highest level in two years.
CBI’s survey took in 47 manufactures and found that 43% expected output to rise over the next three months, compared to just 10% which expected a fall, giving a positive balance of 33% - the highest since September 2013.
That optimism is borne out by economists like Ruth Gregory at Capital Economics, who said that the data found that the “manufacturing sector is getting back on its feet” following a worrying 2016, before going on to state that the sector is on course to grow 1.5% this quarter.
"With manufacturing exports set to benefit from the fall in sterling and solid demand from abroad, the future looks more promising for manufacturing activity than it has done for some time," she said.
That growth can partially be attributed to the weakened pound making British products cheaper abroad, although that weak pound has also driven up the cost of importing dramatically.
As such, the survey also found that 38% of manufactures expected their consumer prices to rise over the next three months, with inflation expectations picking up “notably” within the food and drink sector. Just 6% of manufacturers felt that they would be able to cut prices over the same period, resulting in a 32% balance, the highest since April 2011.
That’s bad news for consumers, which have been tightening their belt post-Brexit and will have to do so further as everyday essentials like food and drink.
As a result, Rain Newton-Smith, CBI chief economist, urged the government and chancellor to offset the cost pressures being felt by businesses by bringing forward a planned measure to link future business rate increases to the consumer prices index (CPI), instead of the real prices index (RPI) to 2018, instead of from 2020.
She added: "Over the longer term, investment in education and innovation as part of the Government’s industrial strategy will really need to deliver in the face of increasing political headwinds."
The value of sterling is set to be in flux for a good while yet, as the government negotiates with Europe regarding the terms of separation and negotiates with powers around the world for trade deals.
