Brexit surveys weigh outlook for UK economy

Sterling ticked higher yesterday against the euro after UK surveys suggested that orders for British manufacturing exports had risen following a Brexit-induced slump in the pound, and that UK consumers were spending more.

The Confederation of British Industry said its measure of overall factory orders dipped slightly in August, but export orders improved to their highest since August 2014.

Manufacturers were more optimistic as output expectations for the next three months rose.

Supporters of the UK’s departure from the EU have argued that a post-referendum decline in sterling was likely to help the economy, while opponents say the outcome of the June 23 vote could tip the country into recession.

Economists cautioned against reading too much into the CBI survey.

Samuel Tombs at Pantheon Macroeconomics said export orders had jumped in August in the past two years only to fall back in September, and the overall reading from manufacturing was consistent with stagnation in output.

Allan Monks at JP Morgan said the survey suggested the economy was set for a sharp slowdown but not a recession.

Anna Leach, CBI head of economic analysis and surveys, said stronger-than- expected manufacturing output growth and some signs that the fall in sterling was helping to bolster export orders were positives.

“But the pound’s weakness is a double-edged sword, as it benefits exporters but also pushes up costs and prices,” she said.

Separate data released yesterday added to signs that UK consumers have shrugged off the outcome of the referendum, at least for the time being.

Grocery sales in Britain saw their fastest rise since March, according to industry data.

However, Brexit is expected to hurt consumer spending over time as the economy slows, inflation picks up and uncertainty over Britain’s relationship with the EU weighs on investment and hiring decisions.

Meanwhile, Markit’s purchasing managers’ index for the eurozone edged up to a seven-month high of 53.3 from July’s 53.2, where any reading above 50 indicates growth.

German private sector growth slowed in August, but remained robust overall, its PMI showed, suggesting Europe’s biggest economy is set to keep on expanding in the summer months after it grew more than expected in the second quarter.

“August’s slight rise in the eurozone Composite Purchasing Managers’ Index suggests that, despite shrugging off the UK’s Brexit vote, economic conditions remain fairly subdued,” said Stephen Brown at Capital Economics.

Consumer confidence fell markedly again across the eurozone in August, official data showed.

“With underlying growth remaining muted, the ECB looks set to ease monetary policy further by year-end. After all, we do not expect inflation to increase by then either,” economists at Commerzbank told clients.

Pressure remains on the ECB to announce more easing as it has so far been unsuccessful in getting inflation anywhere close to its 2% target ceiling.

Surprisingly, strong growth in France supported stable eurozone private business activity during August but factories could face a tougher September as new order growth stumbled.