Weakness in sterling having positive effect on manufacturers as goods made in Britain become cheaper for buyers overseas
British manufacturers and retailers are reporting an upswing in sales, despite fears Brexit could hamper future growth, as the weak pound bolsters exports abroad and consumer spending at home.
Retail sales increased by 1.3% on a like-for-like basis last month from August 2016, when they fell 0.9%, according to the British Retail Consortium. Meanwhile the EEF manufacturers’ organisation said there was rising demand for goods made in Britain from Europe and the rest of the world.
Helen Dickinson, chief executive of the British Retail Consortium, said: “August provided a welcome pick-up in retail sales across channels, with non-food returning to growth as shoppers’ attentions turned to homewares, autumn clothing ranges and the new school term.”
Over the three months to August, food sales increased 1.8% on a like-for-like basis, as growth in other sales increased 0.6%. Children’s clothing helped drive the growth in non-food sales as school’s return from the summer break, while the rising trend for staycations after a drop in the value of sterling strengthened home improvement sales.
However, the healthy retail figures obscure the fact that food sales are growing only as a consequence of rising prices, as the overall number of products sold was weaker than last year. Non-food sales have recently recovered to levels seen two years ago, after a dismal August in 2016. There was also weak growth in retail sales in July, according to the Office for National Statistics.
The slump in the pound – by more than 16% since the EU referendum last summer – has led to higher prices on the high street as the cost of goods imported from overseas increases on a relative basis. That has pushed inflation to 2.6%, outstripping the growth in earnings and putting pressure on household spending
The weakness in sterling is a shot in the arm for manufacturers, as goods made in Britain become cheaper for buyers overseas. A poll of 416 companies by the EEF found an improving eurozone economy was leading to more export orders in the three months to the end of September.
The survey found the balance of firms reporting an increase in export orders has mounted to 33%, from a drop of 2% in the final three months of 2016. Factory gate output and future orders were found to be in positive territory, lifted by demand at home and abroad.
Lee Hopley, chief economist at EEF, said: “Exporting companies are capitalising on growth in the world economy – Europe in particular. That’s encouraging buyers of manufactured goods everywhere, and UK is helping those supply chains, helped by the weak pound.”
Economic confidence is at its highest level in a decade in the eurozone, where GDP is growing at twice the rate of the UK at 0.6%. The European commission’s measure of sentiment increased to 111.9 in August, its highest since July 2007, just before the financial crisis.
Despite positive signals from recent surveys, manufacturers’ contribution to GDP growth has proved elusive in recent months. Output from the industry fell by 0.6% in the second quarter, according to the ONS, having only expanded by 0.3% in the first three months of the year.
Manufacturers’ investment plans are also failing to keep pace with their order books, as uncertainty over Brexit discourages them from putting money into their operations.
Hopley said uncertainty over Brexit could hit firms over the next 12 months. “It is vital the government sends a signal to industry and investors in the UK and overseas that it is doing everything in its power to get growth of the UK economy back on the agenda,” she said.