British manufacturers’ investment intentions recovered over the past quarter as sterling’s slide brightened export prospects, but skills shortages and rising costs are a growing worry, industry figures showed this week.
The Confederation of British Industry said businesses believed that sterling’s slump of more than 15% since Britain voted to leave the European Union in June had boosted their export competitiveness to its highest in years.
But there were longer-run worries about skills shortages as the government set out plans to restrict migration from the European Union, and separate monthly figures from the CBI showed the biggest drop in factory orders since February.
“Manufacturers are optimistic about export prospects and export orders are growing, following the fall in sterling,” CBI chief economist Rain Newton-Smith said.
“However, the weaker pound is also feeding through to costs, which are rising briskly and may well spill over into higher consumer prices in the months ahead,” she added.
The CBI’s quarterly survey of 459 manufacturers was conducted between Sept. 26 and Oct. 13, and in the absence of any official data, offers some signs that business investment is proving more solid than the Bank of England feared.
“Uncertainty created by the Brexit vote is weighing on the manufacturing sector but the fall in the pound will help manufacturers deal with this uncertainty,” Capital Economics analyst Scott Bowman said.
Quarterly business sentiment rebounded sharply after falling to its lowest since 2009 in July.
The BoE has identified business investment as the main initial channel through which the medium-term uncertainty created by the vote to leave the EU would hurt the economy.
In contrast to some earlier surveys, the CBI figures show business investment intentions rebounded in October to above their long-run average, though they remained below the multi-year highs seen at the start of the year.
The central bank meets next week to update its quarterly forecasts and decide whether to cut interest rates again. It will have official figures on how fast the economy as a whole grew, but investment data is not due until late November.
Businesses said sterling’s fall had pushed their competitiveness both inside and outside the EU to its highest since 2009, but their domestic competitiveness was at a record low. Cost growth shot up to its highest since April 2013, and concerns about skills shortages were the highest on record.
“Manufacturers will be looking to the government to implement a new migration system that meets the needs of business while responding to clearly-stated public concerns. Maintaining a preferential route between the UK and the EU … will be important,” Newton-Smith said.
Prime Minister Theresa May has said imposing controls on currently unrestricted migration from the EU will be one of her top goals when she starts talks to remove Britain from the bloc early next year.