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Industrial survey shows buoyant start to 2017 for British economy

Xinhua, January 26, 2017 Adjust font size:

An industrial trends survey published on Wednesday showed that British manufacturing sector has gained positive momentum into 2017.

While the fall in the value of sterling in the wake of the June 23 Brexit vote raised hopes that improved external competitiveness would lead to a revival in British manufacturing, production indicators in the second half of 2016 came in on the soft side.

Manufacturing output fell by 0.8 percent quarter on quarter in Q3, and the October-November average reading pointed to growth in the sector of barely 0.1 percent quarter on quarter in Q4, according to Barclays economists Andrzej Szczepaniak and Fabrice Montagne in a briefing note.

But Wednesday's Confederation of British Industry (CBI) Industrial Trends survey reported that new orders in the three months to January increased at the fastest pace in two and a half years.

"Interestingly, according to this survey, domestic demand continued to outpace foreign orders, despite the fact that manufacturers took satisfaction from their much-improved competitiveness abroad," said Szczepaniak and Montagne.

Survey respondents also expected foreign orders to rise at a firmer pace over the coming three months, along with a significant increase in output growth.

The effect of weaker currency was also evident in the data for unit costs, which rose at the fastest pace in more than five years, reinforcing the impression of building inflationary pressures in the British economy.

"The pound's weakness is a double-edged sword for UK manufacturers. The weakened pound is substantially pushing up manufacturers' prices for oil, commodities and imported inputs -- which is squeezing margins and increasing pressure to hike prices," said Howard Archer, chief UK economist at IHS Markit.

But the prospects for the sector for 2017 remain buoyant.

The output expectations figures -- which rose slightly from 21 to 26 -- is at a level consistent on past form with quarterly growth in manufacturing output of around 1 percent.

"While it is still early days, this suggests that the sector may well provide a positive contribution to GDP growth in the first quarter of 2017," said Archer. Endit