LONDON: Order books at British manufacturers have shrunk to their lowest level in two years in July, with companies blaming the strength of sterling for the pinch.
Companies are also increasingly gloomy about the outlook, with the proportion of respondents to the CBI’s quarterly industrial trends survey expecting the volume of export orders to increase at its lowest level since October 2011.
Katja Hall, deputy director-general at the CBI, said that manufacturers were “continuing to feel the pressure from the stronger pound”, adding that “greater buoyancy in exports remains a missing element from the UK’s recovery”.
The business lobby group also reported that a “significant” number of companies cited political uncertainty in the eurozone as hampering trade.
Earlier in July sterling hit its highest level since 2008 on a trade weighted basis, and so far this year has appreciated more than 10 per cent against the euro. Currency strategists are tipping the pound to continue strengthening over the summer, on the expectation that the first interest rate rise since the financial crisis is drawing closer.
Companies responding to the survey also reported a sharp drop in their perceived competitiveness with the rest of Europe, most likely reflecting the currency moves earlier this year.
Samuel Tombs, senior UK economist at Capital Economics, said the outlook for the sector during the next year or so “remains fairly bleak”.
Howard Archer, chief UK economist at IHS Global Insight, said it was clear that the past three months had been challenging for industry, adding the detail in the survey “does not inspire confidence that the third quarter will be any easier”.
The one bright spot came on the domestic front, where the pick-up in real income growth has helped boost demand for household goods, with companies reporting that domestic orders are continuing to increase at a pace well above the long-term average.
