UK factory optimism hits six-year high after election
Optimism in the UK’s factory sector surged to an almost six-year high in the three months to January, survey data has shown, in a sign that the British economic sentiment picked up following the December General Election.
The sector’s performance over the period was weak, however, with output once again falling as car factories slowed production, the CBI’s quarterly gauge showed.
The survey is the latest to show a bounce in optimism after the Conservatives’ emphatic victory in the 12 December General Election.
Firms and households can now be sure the UK is leaving the European Union on 31 January, providing some certainty after three years of Brexit turmoil.
The CBI’s measure of optimism rose to 23 in January from minus 44 in October, the highest point since April 2014 and the biggest quarterly change on record.
“The CBI’s industrial trends survey provides more evidence that the general election has triggered a positive step-change in business confidence,” said Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics.
Sterling rose sharply following the survey’s release, standing 0.4 per cent higher against the dollar at $1.309 by 11.30am.
The pound has fallen this year as weak economic data and dovish comments from Bank of England officials have increased the chances that Threadneedle Street will cut rates from 0.75 per cent at the end of the month.
Yet today’s CBI survey and yesterday’s better-than-expected jobs report have calmed expectations of a cut, causing sterling to rise once again. Higher interest rates increase demand for a currency.
Thomas Pugh, UK economist at consultancy Capital Economics, said the CBI survey “should help to convince the [BoE’s] monetary policy committee to not cut rates at its meeting at the end of the month”.
The surge in optimism came despite the gauge of output falling to minus 15, however, and only five out of 17 manufacturing sub-sectors expanding. This was the eighth month in a row of flat or falling output volumes, the CBI said.
Anna Leach, CBI deputy chief economist, said the “boost to sentiment belies poor trading conditions over the past quarter, with output and orders still declining.”
“If we are to build on this rebound in optimism among UK manufacturers, it is crucial for the UK and EU to establish a trade deal that supports growth in this sector.”