CBI: Weak pound hits manufacturers’ profits as exports rise

By James Ridler contact

- Last updated on GMT

A weak pound has hit manufacturers' profits, despite strong export sales
A weak pound has hit manufacturers' profits, despite strong export sales

Related tags: Macroeconomics, Economics

The weakness of the pound has hit food manufacturers’ profits, despite a rise in export orders over the past three months, according to the Confederation of British Industry’s (CBI’s) latest quarterly Industrial Trends Survey.

CBI senior economist Charlotte Dendy told FoodManufacture.co.uk​: “Food manufacturers are seeing a real uptick, with output and domestic orders growing strongly. But sterling’s weakness is leaving a mark on the costs and profit margins of food manufacturers.”

The CBI’s survey of 369 manufacturers – including those in the food and drink industry – found that growth in manufacturing output and domestic and export orders all picked up, compared with the previous three-month period.

Of the firms asked, 33% said the volume of output over the past three months was up and 12% said it was down, giving a balance of +21%. This was above the long-run average (+2%), and higher than the preceding quarter (+14%), said CBI.

Currency pressures

CBI chief economist Rain Newton-Smith also cited currency pressures as a continuing problem for manufacturers.

“The past depreciation in sterling continues to leave its mark on firms’ costs and margins. With expectations for factory gate price inflation at their highest in 30 years, the pressure on consumer prices looks set to persist,”​ said Newton-Smith.

The last three months saw employment grow at its fastest pace since 2014, with a further rise expected in the next quarter.

However, skills shortages were high on companies’ agendas, with the number of firms citing a lack of skilled labour as a factor likely to limit output over the next three months, the highest for more than four decades. 

Newton-Smith added: “Capacity pressures are ramping up and skills shortages are a big concern, underlining the importance of establishing a future immigration system that provides companies with access to talent and labour.

Building blocks of a new system

“The building blocks of a new system that meets economic needs and public concerns must start with scrapping the net migration target, which has never been fit-for-purpose.”

Looking ahead, CBI expected the growth in new orders to slow modestly (+18%), as the rise in domestic orders eases (+13%). Expectations for an increase in overseas orders remained upbeat (+25%).

Unit costs growth was forecast to remain strong next quarter, up 30%. Export price growth was set to pick up (+22%), while domestic price growth was also set to accelerate, with expectations at their strongest since January 1984, up 40%.

Meanwhile, food and drink manufacturers should not rely on low-cost migrant workers and, instead, look to automate production systems, environment secretary Michael Gove has told this website.

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