UK factories see Brexit boost from weaker sterling

LONDON (Reuters) - British factories enjoyed their strongest growth in nearly seven years in late 2016 and early 2017 and exports rose quickly, data showed on Friday, suggesting a boost for manufacturers from sterling’s fall after the Brexit vote.

Over the November-January period, factory output had its strongest performance since the three months to May 2010, rising 2.1 percent from the previous three months, the Office for National Statistics said.

While factory output slipped 0.9 percent in January, more than predicted in a Reuters poll of economists, that only unwound some of the strong growth in the previous two months.

In another sign of an improvement in Britain’s trade position, volumes of goods exports over the three months to January grew by 8.7 percent, the biggest increase in more a decade, while imports rose by 1.6 percent.

The data suggest Britain’s economy might be starting to reduce its reliance on consumers to drive growth, economists said, something that has eluded policymakers for years.

That challenge has become more urgent as households - whose spending helped the economy withstand the shock of last year’s decision to leave the European Union - are turning more cautious as inflation rises following the Brexit vote hit to sterling.

“The stage is set for the UK’s export-oriented laggard sector to finally make a positive contribution to growth and, possibly, encourage a much needed rebalancing,” said Kallum Pickering, an economist with Berenberg.

Earlier this week, EEF, a group representing manufacturers, said the sector grew at its fastest pace in more than three years in early 2017, helped by the weaker pound and recovery in key European export markets.

However, manufacturing accounts for only 10 percent of Britain’s economy, meaning an improvement for the sector is likely to have a limited impact on overall economic growth, which is expected to slow in early 2017.


Separate figures from the ONS showed Britain’s goods trade deficit with the rest of the world narrowed slightly in January to 10.833 billion pounds and the trade deficit in the fourth quarter of last year was revised down to 5.0 billion pounds from a previous estimate of 8.6 billion pounds.

An ONS statistician said there was no direct evidence from businesses that the fall in the value of the pound was helping exports but their performance over the last six months suggested an increase in competitiveness in foreign markets.

Samuel Tombs, an economist with Pantheon Macroeconomics, warned against reading too much into the better trade data, saying the narrowing of the deficit in recent months reflected a swing in erratic items.

“Huge uncertainty about the UK’s future trade ties also likely will ensure the economy rebalances towards exports only tentatively,” he said.

Prime Minister Theresa May is poised to launch the process for Britain’s departure from the EU this month, raising questions about how much access it will have to the bloc which buys about half the country’s exports.

The ONS also released figures for construction output in January, which fell 0.4 percent on the month and rose 2.0 percent on the year. The Reuters poll had pointed to a fall of 0.2 percent on the month and growth of 0.2 percent on the year.

Editing by Hugh Lawson