UK factories upbeat on exports, but worried about inflation

LONDON: British factories are seeing their strongest export orders in more than six years, helped by the fall in the value of sterling after last year´s Brexit vote, but they are also scaling back on investment plans, a survey showed on Monday.

The Confederation of British Industry´s quarterly measure of manufacturing showed the biggest increase on record in the competitiveness of UK producers in non-European Union markets. However, the weak pound was pushing up prices and unit costs rose at their strongest rate in six years.

The CBI also said companies reported their weakest plans for investment in plant and machinery since mid-2011, when Britain´s economy was still struggling with the hangover from the global financial crisis.

The world´s fifth-biggest economy looks set to slow this year as high inflation eats into the spending power of consumers. Furthermore, companies are expected to hold back on investment while the country´s future relationship with the EU is negotiated over the next two years.

But some of the hit is likely to be softened by stronger exports which are being helped by the weaker pound and a pick-up in the global economy.

The CBI said domestic orders were buoyant too, rising at their fastest pace in nearly three years in the three months to April.

"UK manufacturers are enjoying strong growth in demand from customers in the UK and overseas, and continue to ramp up production," Rain Newton-Smith, the CBI´s chief economist, said.

"Exports have surged and firms are at their most optimistic about selling overseas in over four decades. Even so, the combination of the weak pound and recovering commodity prices means that cost pressures continue to build, and manufacturers report no sign of them abating over the near-term.

"The CBI´s monthly balance of manufacturing output eased back to +4 in April from +8 in March and expectations for the next three months also slipped to +16 from +36.The CBI said its quarterly survey was conducted before British Prime Minister Theresa May announced her plan for a national election on June 8.