UK factory output boosts to fastest pace in three years


19 May, 2017

UK factory output boosts to fastest pace in three years

British factories enjoyed the highest surge in output in more than three years in the quarter to May, as the devalued pound bolstered exports, according to the Confederation of British Industry (CBI).

A survey by the business group showed robust growth in the mechanical engineering and chemicals industries pushed output up at the quickest rate since December 2013. Domestic and overseas demand helped revenues swell to their highest since February 2015, while export orders matched the three-year high seen in March.

The CBI's survey of 432 manufacturers showed bosses forecasted output to grow "at the same robust pace in the coming quarter", with 37% expecting growth, compared with 10% predicting a decline.

CBI chief economist, Rain Newton-Smith said: “The summer sun has come out early for Britain’s manufacturers. Robust demand at both home and abroad is reflected in strong order books, and output is picking up the pace."

Economist at Capital Economics, Ruth Gregory said the figures provided "another reason to be optimistic" about economic growth in the second quarter, following the UK's 0.3pc expansion in the first three months of 2017.

Official data this week showed UK retail sales saw a revival in April, suggesting consumer spending was unlikely to grind to a halt this year, even as economists expect higher inflation to put the brakes on growth.

"The upbeat survey supports our view that the manufacturing sector should perform well this year and help to offset some of the slowdown in consumer spending growth," said Ms Gregory.

While the devaluation of the pound since Brexit has boosted Britain's competitiveness, it has also pushed up import costs.

The CBI's survey showed average selling prices were likely to keep rising, albeit at a sustained pace in the coming months, with factory gate price growth expected to have peaked in February.

“Boosting productivity is key to alleviating some of the cost pressures that manufacturers are facing. Sustained investment in innovation and education will be vital to shore up the success of British industry," said Ms Newton-Smith.

A survey by the Bank of England this week suggested exporters would enjoy a year of robust growth - both in value and volume terms, though output in the medium term was expected to be hit by bigger trade barriers.

Exporters were especially upbeat about the short-to-medium prospect, with respondents citing the fall in the sterling’s value and optimism about entry into new markets as factors that would boost export values, even as doubt over the UK’s future relationship with the EU weighs in on growth.

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