Export orders at 10-year high and manufacturing prospects on the up, says CBI survey
business.guardian.co.uk
Angela Balakrishnan
Thursday May 25, 2006
The Guardian
British firms' export orders from the resurgent eurozone are at their strongest for 10 years, while business investment picked up firmly in the first quarter, boosting hopes that UK industry is on the road to recovery.
The CBI's industrial trends survey of 705 firms showed that in May the percentage of exporters reporting orders above normal increased to the highest level since February 1996, driven by demand for capital goods such as industrial engines and aerospace equipment.
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"The outlook for UK manufacturing is more encouraging than it has been for some time on the back of the strong performance of eurozone economies and continued growth in the US," said Ian McCafferty, chief economic adviser of the CBI.
The CBI said total orders were slightly weaker than in April as disappointing domestic orders more than offset the buoyant export orders. "While the survey showed a modest easing back in total orders and output expectations compared to April, it nevertheless remains relatively strong compared with recent surveys," said Howard Archer, an economist at Global Insight.
A healthy increase of 1.7% in business investment in the first three months of 2006, reported by the Office for National Statistics, encouraged the positive tone. Manufacturing investment made a significant contribution, jumping 7%.
The CBI reported that there was little sign of an increasing appetite for British-made consumer goods, casting doubt over the strength of consumer spending. "Until this happens the recovery will remain fragile," Mr McCafferty said.
"Despite firm demand conditions, manufacturers are still struggling to pass on higher costs," said Paul Dales, an economist at Capital Economics. However, the data from business investment and the industrial trends survey raised hopes that the economy was rebalancing towards the industrial sectors, as the outlook for contributions from consumer spending to growth appeared weak.
With the second estimate of first-quarter economic growth out today, economists believe that the industrial sector will make a decent contribution to growth.
The data was unlikely to cause the Bank of England to change interest rates, economists said. Strong competition was preventing rising energy and raw material prices from feeding through the supply chain, putting pressure on manufacturers' profit margins.
"This reinforces the case for interest rates to remain unchanged for some time to come," Mr Archer said.
This was reinforced by the new monetary policy committee appointee, David Blanchflower. He gave little away at yesterday's confirmation hearing in the Treasury select committee, but economists said he was unlikely to vote against the majority, at least in the near term. |
