U.K. Factories Reap Export Benefits of Brexit’s Drag on Pound

(Bloomberg) -- U.K. manufacturers are starting to see the benefits of the pound’s decline, with export orders posting their best performance in two years.

An index of foreign demand rose to minus 5 this month, the highest since August 2014, from minus 22 in July, according to a survey published Tuesday by the Confederation of British Industry in London. It said the result is a “tentative sign that sterling’s depreciation is starting to filter through.”

Britain’s vote to leave the European Union pushed the pound to a three-decade low last month, which may provide a lift to foreign sales and support economic growth. Net trade has been a drag recently, thanks to sluggish global demand and the strength of sterling.

The CBI lobby also highlighted the negative side-effects of a weaker currency -- higher prices. Firms in the survey expect to increase prices at the fastest pace since early 2015, possibly a response to rising import costs.

“It’s good to see manufacturing output growth coming in stronger than expected and some signs that the fall in sterling is helping to bolster export orders,” said Anna Leach, head of economic analysis at the business lobby. “But the pound’s weakness is a double-edged sword,” she said, noting the impact on prices.

The CBI said 13 of the 18 industrial sub-sectors surveyed between July 26 and Aug. 12 reported better overseas orders than previous month. Its total orders index slipped to minus 5 in August from minus 4 in July.

The improved readings on the export side follow last month’s quarterly survey, which found U.K. manufacturers’ confidence at its lowest since 2009.

--With assistance from Mark Evans To contact the reporter on this story: Thomas Seal in London at tseal@bloomberg.net. To contact the editors responsible for this story: Eddie Buckle at ebuckle@bloomberg.net, Fergal O'Brien, Emma Charlton