UK factories have best month for orders since 1988
British factory orders have hit their highest level in nearly 30 years, according to a monthly Confederation of British Industry survey which might encourage Bank of England policymakers who favour an interest rate hike.
The CBI said its factory order book balance jumped to +16 in June, its highest level since 1988. Economists taking part in a Reuters poll had expected a weaker reading of +7 compared with +9 in May.
Export order growth was its strongest in 22 years, the CBI said, helped by the fall in the value of the pound that was triggered by last year’s Brexit vote.
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The strong performance by manufacturers will be noted by the BoE, where three members of the eight-strong Monetary Policy Committee last week voted to raise rates, citing among other factors a pick-up in exports and investment which could help to offset a squeeze in spending for domestic consumers.
The MPC’s five other members backed keeping rates on hold but on Wednesday, the BoE’s chief economist, Andy Haldane, said he was likely to vote for a rate hike too later this year, as long as the economic data justified it.
BoE Governor Mark Carney said on Tuesday he wanted to see how Britain’s economy coped with uncertainties about Brexit in the coming months before considering a rate hike.
Philip Shaw, an economist with Investec, said the CBI survey could provide marginal support for the case for a rate hike.
“But while it’s reassuring to see some evidence of a strengthening of exports, one should remember that manufacturing still only accounts for about 10 percent of the economy,” he said, adding that the much bigger services sector was slowing due to the squeeze on consumer spending power.
The CBI survey showed factory output in the past three months slowed back to a level last seen in January while expectations for the next three months remained strong.
“Nevertheless, with cost pressures remaining elevated, it’s no surprise to see that manufacturers continue to have high expectations for the prices they plan to charge,” Rain Newton-Smith, the CBI’s chief economist, said.
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Britain’s inflation rate has risen to its highest level in nearly four years, pushed up in part by the fall in the value of the pound since the Brexit vote.
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