Producers to pin export hopes on weak sterling

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MANUFACTURERS hope that a weaker pound will give them an exports boost in the coming months despite output falling for the past 12 months.

Small and medium-sized manufacturing companies reported that their orders and output continued to fall in the three months to 30 April, according to the CBI’s latest quarterly small and medium-sized enterprises (SME) trends survey.

The latest decrease in total new orders was driven by falls in both domestic and export demand, disappointing’ expectations that it would pick up.

Yet manufacturers expect output to increase slightly over the next three months, on the back of strong predicted growth in export orders, while domestic orders look set to stabilise.

Stephen Gifford, the CBI’s director of economics, said: “It’s been another disappointing quarter for small and medium-sized manufacturing firms, which have seen new orders and output continue to fall.

“Firms do expect to raise output a little in the coming three months. The recent weakening in sterling will have boosted the competitiveness of the UK’s smaller manufacturing firms, with a strong pick-up in export orders predicted.

“But conditions will remain challenging for the sector. Fears about the impact of political and economic conditions abroad on export demand have risen and there is little sign in this survey that credit conditions are improving.”

Growth in average unit costs was the fastest since October 2011, squeezing manufacturers’ profit margins once again.

Pressure on margins is expected to persist during the coming quarter, with domestic prices expected to rise only slightly, and exports to be flat, against a backdrop of strong cost inflation, the CBI added.

News of the report comes after last week’s purchasing managers’ index (PMI) survey from Markit and the Chartered Institute of Purchasing & Supply (Cips) gave a “glimmer of hope” after new figures suggested the sector downturn could be nearing an end.

The headline PMI reading of 49.8 for April was just below the 50 level that separates growth from contraction, up from a low of 47.9 in February and 48.3 in March.

Export orders rose, boosted by increased sales to Australia, Latin America, the Middle East and North America, but demand from the eurozone remained “lacklustre”.

Cips’ manufacturing PMI was followed by up-beat readings from the construction and services sectors, reducing the likelihood of the Bank of England embarking on further fiscal stimulus this week.

Rate-setters at the bank’s monetary policy committee (MPC) look almost certain to hold off launching a fresh round of quantitative easing (QE) when they vote on Thursday.