UK exporters gloomy as shopping spree lifts investment
Friday 25 July 1997
Its monthly survey yesterday revealed an expanding wedge between consumer- driven buoyancy at home and sharply declining orders overseas, suggesting that the British economy is combining the worst aspects of both the early 1980s recession and the late 1980s boom.
Although official trade figures yesterday showed no sign yet of an export slowdown due to the strong pound, economists predicted that this was only a matter of time.
"How you weigh the slowdown in the pipeline against the buoyancy now is tricky. The Bank of England does not have the most enviable job at the moment," said David Walton at investment bank Goldman Sachs.
Geoffrey Dicks at NatWest Markets said there was no escape from the uncomfortable dilemma. "We have made our bed, we must lie in it. We are sacrificing our exporters to our consumers," he said.
The CBI said a further increase in interest rates would be "unwelcome". Andrew Buxton, chairman of its economic affairs committee, stopped short of predicting a recession, but said: "The Government needs to recognise that the very high pound is going to impact on production and employment in export industries."
The survey showed the balance of firms reporting higher rather than lower export orders in the past four months falling to minus 20 per cent. The balance of optimists over pessimists about export prospects plunged to minus 28 per cent, the weakest since October 1980.
General business optimism also fell for the first time in more than a year. Domestic orders increased at a faster pace than the previous month, however, while reported output continued to expand.
Among the most positive signals was a big improvement in planned investment spending, with the balance rising from 13 to 21 per cent. This was the highest since the late 1980s.
"Industry is treading water but not drowning," said Simon Briscoe, chief economist at Nikko Europe.
There was support for this in the official trade figures published yesterday. The shortfall between exports and imports surprised analysts by declining from pounds 1bn in April to pounds 508m in May. The main reason was a small surplus of pounds 76m on trade with the EU as British imports from Europe declined sharply.
Monthly trade figures can be very erratic, but the underlying trends in trade volumes also pointed to the absence of any impact from the strong pound. In the three months to May underlying export volumes grew by 2.7 per cent, while import volumes rose by 0.6 per cent. The Office for National Statistics said the trend in the trade deficit was narrowing.
The growth in exports was strongest in intermediate goods such as electronic components and car parts. There was no sign of increased imports of consumer goods despite strong retail sales growth during the past few months.
The one, tentative sign that the trade position is starting to suffer came from an increase in the deficit with non-EU countries last month. A small increase in imports and drop in export sales put it pounds 713m in the red, against pounds 584m in May.
Despite the favourable figures, there was widespread gloom about Britain's trade prospects. "It takes time for a loss of competitiveness to feed through into actual volumes," said Kevin Darlington at Hoare Govett. But collapsing export order books indicated that this was imminent, he said.
The City expects the Bank of England's Monetary Policy Committee to increase the level of interest rates to 7 per cent despite concerns about a future slump in exports.
Eddie George, the Bank's Governor said earlier this week that the cost of borrowing had to be set with the whole economy in mind.
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