UK factory output grows at fastest rate since mid-1990s | Business

Britain’s manufacturers increased production last month at the fastest rate since the mid-1990s, according to the latest CBI industrial trends survey.

The business lobby group said the fall in sterling over the last year – a 12% decline against the dollar – continued to bolster export orders while domestic demand for manufactured goods remained strong.

Firms were optimistic about the prospects for future orders and planned to increase employment after a resurgence across most manufacturing sectors in recent months.

The report found 43% of firms said the volume of output increased in the three months to July, compared with 12% that said it was down, giving a balance of +31%, the highest since January 1995.

Rain Newton-Smith, the CBI’s chief economist, said: “Output growth among UK manufacturers is the highest we’ve seen since the mid-90s, prompting the strongest hiring spree we’ve seen in the last three years. Cost pressures are easing and firms are upbeat about the outlook for export orders.

“It’s great to see the benefits from the decline in sterling for UK exporters feeding through. But the flipside is the broader hit to consumer spending power across the economy from stronger inflation, which is likely to have fuelled the slowdown in the economy in the first quarter and is expected to pull down growth in the second quarter.”

Manufacturers were also busy amassing raw materials at the strongest rate since April 1977, while expectations for output growth stood at the highest since April 2014.

Some analysts said the effects of a broader economic slowdown were already being felt in the manufacturing sector and the CBI survey failed to capture this trend.

Samuel Tombs, a UK economist at Pantheon Macroeconomics, said the survey had been far too upbeat over the last six months. Official figures have shown manufacturing output down 1.1% in the three months to May compared with the previous three months.

Tombs said: “Markit’s manufacturing survey – which has been more closely aligned with the official data than the CBI’s survey in the past – also has weakened significantly recently. Indeed, manufacturers in June were the least optimistic about future production since November 2016, according to Markit.

“The CBI’s survey has a small sample size and it is not seasonally adjusted, despite showing a strong seasonal pattern. Its measure of orders also reflects the number of manufacturers reporting them to be above or below ‘normal’, which is a moving target. For now, then, we’re inclined to place less weight than usual on the CBI’s survey.”

Howard Archer, the chief economic adviser to the EY Item Club forecasting group, was also sceptical about the rosy picture painted by the CBI survey.

“Despite the largely upbeat July CBI survey, the outlook for manufacturing appears mixed. On the domestic front, increased prices for capital goods and big-ticket consumer durable goods, diminished consumer purchasing power, and economic and political uncertainty look likely to hamper manufacturers.”

Dennis de Jong, the managing director at trading platform, said the CBI survey offered “some light relief” after a run of GDP growth downgrades by the International Monetary Fund and Bank of England. But the headwinds of high inflation and the uncertainty created by the Brexit negotiations would take its toll over the coming months, he said.

“All aspects of the UK’s economy, particularly manufacturing, will rely heavily on the success of Brexit negotiations. Until we have any clarity on how the UK may fit in, if at all, to the single market, it is difficult to be overly bullish on the country’s economic future,” De Jong said.

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