Export orders hit 15-year low as trade gap continues to widen

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BRITISH manufacturers are facing the lowest level of export orders for more than 15 years, according to an industry survey yesterday, as figures showed that the trade gap continued to widen in April and May.

Orders in the home market have weakened too, the Confederation of British Industry reported. Manufacturers expect no rise in their output over the next four months, while their expectations for pushing through price rises at the factory gate are the lowest ever recorded by the survey.

But even with such gloom hanging over manufacturing, most economists expect the Bank of England will raise the cost of borrowing again because of inflation pressures elsewhere in the economy.

The UK was pounds 1.4bn in the red in trade in goods in April, an improvement from March's pounds 1.5bn. However, the deficit with non-EU countries in May widened from pounds 769m to pounds 1.6bn.

Much of the leap during May was due to higher imports of aircraft and precious stones, but even excluding erratic items the gap was pounds 200m wider at pounds 892m. Higher sales to North America were not enough to offset falls in exports to Asia and the Opec countries.

The CBI survey suggested there is worse to come. The balance of companies reporting lower rather than higher export orders was minus 50 per cent in June. The balance on total orders slipped to the lowest for five years.

Although many City experts agree the interest rate rises have helped keep sterling too high, Adam Cole, UK economist at HSBC Securities, said: "It is not the Bank's job to get the pound down. Manufacturers have become uncompetitive not just because of the strong pound but also because of their own abysmal productivity record."

Output per hour in manufacturing rose just 6 per cent in the UK between 1992 and 1996, compared with a 20 per cent increase in the US and 17 per cent in France and Germany.

But Kate Barker, the CBI's chief economist, said: "Industry probably did need the cold shower of an over-valued exchange rate in the early 1980s, but it doesn't need one every five years."

Meanwhile, separate figures across the Atlantic showed the US economy expanding even more rapidly than originally recorded in the first quarter of this year. However, evidence is accumulating that it, too, will slow down this quarter.

GDP grew at a seasonally adjusted rate of 5.4 per cent in the January to March quarter, compared to the previous estimate of 4.8 per cent.

Exports fell by only 1.2 per cent instead of 3 per cent as originally thought, despite the Asian crisis.

But the figures also showed that the stockpile of unsold goods continued to mount, with inventories increasing by a record $105bn. This overhang is one factor pointing to slower growth ahead.