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OPINION

Rebalancing act

Rebalancing act
September 21, 2017
Rebalancing act

But in the game of global economics a weak currency is the preferred option for governments looking to stimulate growth. Sterling softness has certainly proved good news for the manufacturing sector since its post-Brexit tumble, even if the tendency of exporters has been to boost margins by raising prices rather than passing on the currency savings to overseas customers – and naysayers will also argue that our import addiction continues to far outweigh the small benefit of rising exports. Yet that ignores the fact that manufacturing is nevertheless significant: according to new research from manufacturing trade body the EEF, the UK has rebounded this year to become the world’s eighth largest manufacturing economy, with output of £249bn a year – 10 per cent of the economy – of which 44 per cent is exported. Weak sterling, says the EEF, has certainly helped.

Consumers have hardly been blown away by Brexit-induced price increases, either, as some had feared. True, hedging has meant that the 15 per cent fall in sterling did not flow fully into shop prices, but as Next pointed out the inflationary impact is starting to weaken anyway. Like Next – whose results you’ll find on page 45 – broader retail sales this month have proved much better than expected. Hardly the stuff of ‘stagflationary’ nightmares.

But while this is hardly the economic catastrophe many were predicting in the referendum melee, there are some conflicting signals worth paying attention to. Indeed, the boom in retail sales is especially counter-intuitive given Markit’s Household Finance Index suggests that householders are more worried about money than they have been for some time. And as Ian Smith says on page 44 the knock-on effects of an anticipated November interest rate rise when it comes could prove a drag on sectors that have benefited from low rates – retail among them, and a recovery story I’d be cautious of.

Back on the bullish side, and VCTs are set for a record year of fundraising to back Britain’s army of small businesses (see page 40). Yet, according to the Federation of Small Businesses, there are still many more small UK businesses that admit to struggling. Again, though, it is noteworthy that its latest survey reveals it is those with exposure to the domestic economy who are most worried, with smaller exporters significantly more optimistic. Indeed, the message for investors as we head towards the EU exit in 2019 is that the best protection from Brexit – if you really need it – is to back those companies embracing the much-mocked ‘sunlit uplands’ of global trade. The London market offers plenty of them.