Manufacturing order growth eases back as pound boost fades

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Britain’s manufacturing sector has continued to expand at a healthy pace, but new figures show weaker growth in order books in the latest sign that the boost from the weak pound is beginning to fade.

The latest industrial trends survey by the Confederation of British Industry (CBI) showed a balance of 10% of firms reported an increase in order books over the three months to February, down from 14% in January, although still above the long-run average.

Export order growth eased back significantly, with a balance of 10% against 19% in January.

This is also expected to moderate in the three next three months, the CBI survey found.

It comes after another closely watched survey showed output in Britain’s manufacturing sector unexpectedly slipped at the start of the year as the industry grappled with a double-whammy of slowing growth and escalating costs.

The Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) reported a reading of 55.3 last month, down from 56.2 in December and drifting to a six-month low after a booming recent performance.

Economists said while the sector’s output remains robust, the CBI figures add to evidence that its recent pound-inspired rally may be easing off, which could see wider economy growth ease back in the first quarter.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The further decline in the CBI’s total orders balance in February indicates that the support to growth in manufacturing output from sterling’s depreciation is beginning to fade.”

He added that rising price pressures, particularly from higher oil prices, could mean that “last year’s strong upward momentum in the manufacturing output likely won’t be sustained”.

Howard Archer, chief economic adviser at the EY Item Club, said the slight loss of momentum in the manufacturing sector points to UK growth easing back to 0.4% in the first quarter, from 0.5% at the end of 2017.

He said: “The outlook for manufacturing looks bright on the foreign demand side, but domestic conditions could prove challenging over the coming months.

“On the domestic demand front, still squeezed consumer purchasing power and business caution over investment amid significant uncertainties largely focused on Brexit are a challenging combination for manufacturers.”

The CBI survey of 397 manufacturers showed that growth was broad-based with output growing in 16 out of 17 sub-sectors, predominantly driven by food, drink and tobacco and motor vehicle and transport equipment sub-sectors.

It also found that firms’ expectations for output price inflation weakened from the 34-year high in January, but remain above the historical average.

This will “do little to dilute expectations that the Bank of England will hike interest rates in May” to rein in inflation, according to Mr Archer.

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