UK industry hit by fall in export orders

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Manufacturers’ export orders have deteriorated suddenly this month in a sign the UK is starting to feel the effects of the persistent economic weakness in the eurozone, its biggest trading partner.

A survey of 488 manufacturers by the CBI business lobby organisation showed output growth remained strong but total orders had deteriorated to below their “normal” levels. Export orders fell sharply to their weakest since January 2013.

“Against a backdrop of acute political uncertainty at home and abroad, exports orders for UK manufacturers are faltering,” said Katja Hall, the CBI’s deputy director-general. “However, it’s encouraging that output growth has remained solid and firms expect production to rise strongly in the next quarter.”

The data adds to evidence from official data and unofficial surveys that exporters are starting to suffer from the eurozone’s problems.

Confidence has also been hurt by geopolitical tensions in Ukraine, while the stronger pound this year has made the UK’s exports less competitive.

Lee Hopley, chief economist at the EEF, the manufacturers’ trade organisation, said she was picking up a “very similar picture” on the ground from members. But she said the mood in the sector was still confident overall. “Talking to companies, they are saying enquiries are coming in, and we are picking up efforts to pursue more opportunities outside of Europe.”

Growth in the manufacturing sector, which accounts for about a tenth of the UK economy, has settled at “cruising speed” after four or five quarters of rapid growth, Ms Hopley said.

The CBI survey comes amid signs the Bank of England has grown more worried about the persistent weakness of economic growth and inflation in the eurozone.

“The accumulating evidence of the weakness in the euro area had been the most significant development during the month,” the minutes of the latest MPC meeting said. “Although the direct impact on the UK of the current phase of disappointing activity might be relatively modest, a prolonged period of poor growth and very low inflation could have a larger impact.”

Minouche Shafik, the new deputy governor at the Bank of England, told MPs this month that the eurozone’s problems were a blow to the UK’s hopes to “rebalance” the economy away from domestic consumption and towards exports.

“The worrying thing for the UK is it means our own recovery will continue to depend a lot on domestic factors,” she told parliament’s Treasury select committee. “We’ve had some rebalancing to investment, but the rebalancing we had hoped for on the external side is not going to show up for a while I’m afraid.”

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