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Stronger Pound Weighs On Export Orders

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Export orders have fallen sharply over the past month, the CBI reports today, a possible sign that the recent recovery in the pound's value has reduced interest from foreign buyers for British goods.

The CBI's latest monthly snapshot of the manufacturing sector showed that of nearly 600 firms surveyed only 6% said orders were above normal while 58% said they were below normal. The resultant balance of -52% is the worst reading since October 1998.

Total orders books, though, improved slightly, to a balance of -51% and the pace of industrial output decline slowed, ­giving a balance of -17%, the same as in May but a lot better than April's -32%.

"Export orders are no better than they were a few months ago, reflecting the continued weakness of overseas demand for UK-made goods," said Ian McCafferty, the CBI's chief economic adviser. "As such, conditions for UK manufacturers remain challenging with volumes of total orders still at very weak levels,.

"However, manufacturing firms do expect output to fall at a much slower pace compared to the beginning of the year, as the drastic action they have taken to reduce stocks appears to be paying off. Although the stock position somewhat improved on previous months, stock levels remain high relative to demand."

Firms surveyed are still planning to lower their domestic prices over the next three months but at a much slower rate than expected only a month or two ago.

Howard Archer, economist at IHS Global Insight, said the weakness of overseas markets remained a problem for British firms.

"This indicates that still very difficult conditions in important overseas markets are outweighing the boost to UK manufacturers coming from the marked overall weakening of the pound. Furthermore, it looks like export orders could well have been hit in June by the recent rally of the pound.

"The manufacturing sector is benefiting markedly from the substantial stock adjustment that has taken place. Nevertheless, manufacturers still face serious obstacles and the CBI survey does little to dilute suspicion that sustainable growth in the sector could remain elusive for some time to come."

How long before exports begin picking up ?

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