UK manufacturers see export boost from weaker pound

UK manufacturers saw a rise in output and orders over the last quarter, with a significant increase in exports due to the weaker pound, according to a new report from the CBI.

The business group’s quarterly Industrial Trends Survey, published on Monday, reveals that export volumes grew at the fastest pace for two and a half years in the three months to October.

Based on responses from 459 manufacturers, the survey showed a modest rise in domestic demand, while export orders rose for the first time in over a year.

Looking ahead, the outlook for demand over the next three months is generally positive, with a further rise in export orders alongside more modest growth in domestic orders. However, the firms questioned for the survey expressed concern about the availability of skilled labour, with almost a quarter of respondents observing that skilled labour availability could limit their output over the next few months.

The CBI also found that optimism about the business situation fell slightly again after a sharp decline in the previous quarter. Employment in the sector is also expected to decrease in the coming quarter, although investment intentions have improved following a decline last quarter.

Lastly, while sterling’s sharp depreciation has led to an increase in export orders, it has also raised manufacturers’ costs. In the latest three-month period unit costs rose at their fastest pace in three years, and are expected to continue growing at above the long-term average over the quarter ahead.

This increase was accompanied by modest domestic price inflation, as manufacturers sought to pass on some of the cost increase to their customers, the CBI reported.

Overall, the majority of exporting manufacturing firms said that the fall in the pound since June has had a negative impact on their business.

Commenting on the quarterly survey, Rain Newton-Smith, chief economist at the CBI, 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.

“Access to skills clearly remains a high priority, so manufacturers will be looking to the Government to implement a new migration system that meets the needs of business while responding to clearly-stated public concerns. Maintaining a preferential route between the UK and the EU, our largest trading partner, will be important.

“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.”