British manufacturers are shaking off Brexit and reporting rapid growth

Musa Aumeed brazes a bike frame at the Brompton Bicycle factory in west London January 10, 2014. Loan refusal letters and retailers' rejections frame the walls of the Brompton Bicycle factory, a reminder of the obstacles the firm has overcome to establish itself as the UK's top bike-maker, selling 45,000 a year around the world.

Reuters / Luke MacGregor

Musa Aumeed brazes a bike frame at the Brompton Bicycle factory in west London January 10, 2014. The firm is the UK’s top bike-maker, selling 45,000 a year around the world.

Domestic orders up 19%.
Export orders up 20%.
New orders at three-year high, CBI survey says.

LONDON — The UK’s small and medium-sized (SME) manufacturers shook off Brexit woes and reported strong growth in orders in the three months to April, but rising costs and prices continue to bite, according to the CBI.

The CBI’s latest SME Trends survey of 373 manufacturers found growth in total new orders was at a three-year high.

Domestic orders rose at 19% for the quarter, sequentially — their fastest pace since October 2013. Export order growth accelerated to 20% sequentially, the highest growth rate since April 2011.

Export growth is likely to have been boosted by the fall in the value of the pound following June’s Brexit referendum, as a lower-valued currency makes a country’s produce cheaper for those buying abroad.

Output growth was also at its highest level for six years: 31% of firms said the volume of output over the past three months was up and 13% said it was down, giving a positive balance of 18%.

Sentiment among SMEs is also upbeat. Optimism about the UK’s business prospects rose significantly: 31% of firms were optimistic more optimistic about the general business situation than three months ago, and 13% said it was down, giving a net balance of 17%.

The news comes after the UK’s services sector — which accounts for more than 75% of the country’s GDP — had another strong month in April, completing a hat-trick of better-than-forecast economic data in the month.

Inflation is biting

The weak pound which is driving growth in exports is also stoking inflation, however. SME manufacturers reported the strongest rises in unit costs and prices in six years. Average domestic prices rose by 26%, average export prices rose by 28%, and average unit costs rose by a staggering 38% — all rising at the fastest rate for six years.

Investment plans for the year ahead also deteriorated, with more manufacturers intending to spend less on buildings and machinery over the next 12 months than the did over the previous year.

Alpesh Paleja, CBI’s chief economist, said: “The UK’s SME manufacturers have hit a purple patch, with strong domestic and export demand driving a firm rise in output.”

She added: “But costs and prices have continued to climb, with little sign of let up over the next quarter. This is putting considerable pressure on manufacturers’ margins, and so we’re likely to see further pass-through to consumer prices ahead.”