Weaker pound boosts exports, but import costs rise steeply

According to the latest Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) survey, the weak pound boosted manufacturing and exports in October, but the cost of imports has risen steeply.

• UK Manufacturing PMI at 54.3 in October

• Upturns in output, new orders and employment continue

• Weaker exchange rate raises input costs and new export orders

Four months after the UK voted to leave the European Union, the pound has fallen 14.5 per cent against the euro and 18 per cent against the US dollar.  The weaker pound has made the import of raw materials such as oil more expensive but, on the flip side, the weaker exchange rate has also increased the number of orders from the US, the EU and China, giving UK manufacturing a boost.

The rising production requirements have helped to increase manufacturing employment, with job creation being the strongest amongst SMEs, whereas only a marginal increase was signalled for larger firms.
Rob Dobson, Senior Economist at IHS Markit, which compiles the survey: “The UK manufacturing sector remained on a firm footing in October and should return to growth in the fourth quarter.

“The main topic of the latest PMI survey was, however, the impact of the sterling depreciation on manufacturers. On the positive side, the boost to competitiveness drove new export order inflows higher, providing a key support to output volumes. The down-side of the weaker currency is becoming increasingly evident, however, with increased import prices leading to one of the steepest rises in purchasing costs in the near 25-year survey history. Around 90% of companies offering a reason for increased costs made some reference to the sterling exchange rate."

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, added: "The impact of the pound’s performance against the euro and dollar was particularly felt on imports …. Especially highlighted were costs for flour, dairy products, steel and zinc. These price hikes resulted in manufacturers passing on higher prices to their customers as charges rose for the sixth consecutive month and to the steepest degree since June 2011. With rates of inflation moving higher, policymakers will need to keep a close watch and possibly change tack if needed to stay well within their targets.”

In this current economic climate, it is essential that businesses put in place measures to help them adapt to the market changes. Businesses must also keep a constant lookout for risk factors in their supply chains which could mean the difference between success or failure. By recognising and acting on the warning signs at the earliest possible opportunity you will be able to re-evaluate, improve and, where necessary, restructure your personal or business’ financial affairs.

At Beavis Morgan, our specialist advisers to the manufacturing sector are able to assist with all aspects of business performance including putting adequate measures in place to protect the health of your business, both now and for the future.

Our Research & Development (R&D) tax credits team have also made a significant number of successful claims on behalf of clients in the manufacturing sector.

Contact Steve Govey or your usual Beavis Morgan Partner for further information about how we can assist you and your business.