Manufacturers report surge in overseas demand, though retail sales fall over Q1
The CBI’s regular roundup of the key economic indicators.
The CBI’s Industrial Trends Survey showed that manufacturers’ domestic orders improved at the fastest pace since July 2014 in the three months to April, while export orders recorded the strongest growth in six years. Companies are also upbeat in their year-ahead expectations for exports, with optimism posting the biggest gain in over four decades. While this may be a sign that the benefits of a lower pound are starting to be felt, the weaker exchange rate has also continued to push up costs, with firms reporting the strongest rises in unit costs in six years. Furthermore, investment intentions for the year ahead softened across the board, particularly for buildings and plant & machinery.
Results of the Labour Force Survey showed that employment rose by 39k in the three months to February to 31.8mn. Unemployment fell by 45k over the same period, with the unemployment rate staying at 4.7% (the lowest since 1975). But real average earnings growth – pay adjusted for CPI inflation, excluding bonuses – was just 0.1% on a year ago (the weakest outturn since mid-2014) as nominal wage growth continued to edge lower against a backdrop of higher inflation.
Retail sales volumes (including automotive fuel) fell by 1.5% over Q1 2017, marking the fastest decline in seven years. This chimes with the softening in real earnings growth, with rising inflation starting to eat into households’ purchasing power. Indeed, prices in the retail sector rose by 3.3% year-on-year in March, the strongest inflation in five years and the fifth consecutive monthly price rise after over two-and-a-half years of deflation.
Over the 2016/17 fiscal year, public borrowing (excl. financial interventions) was £52.0bn, marking a narrowing of £20 billion in the deficit compared to 2015/16. This was down to growth in tax revenue (a strong 5.9% over the year) outpacing the rise in current spending (1.4%). Borrowing now stands at 2.6% of GDP; similar to deficits of 2-3% of GDP that were common in the lead-up to the financial crisis. However, the UK’s underlying public debt (excluding the Bank of England) is 80.7%, which is more than double the public debt to GDP ratio of 36.7% in 2007/08, the last fiscal year before the financial crisis.
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