August 1, 2017 / 11:20 PM / 2 years ago

Small UK manufacturers in midst of export-led 'sweet spot' - CBI

(This story has been refiled to drop stray word in headline.)

LONDON (Reuters) - Smaller British manufacturers are in the midst of an export-led “sweet spot”, with output increasing at the fastest rate in seven years, according to an industry survey on Wednesday.

The Confederation of British Industry’s (CBI) quarterly report on small- and medium-sized manufacturers showed export orders increased at the strongest pace since 2011, chiming with a survey on Tuesday that highlighted strong demand from abroad.

Supporters of Britain’s decision to leave the European Union have said that sterling’s fall since last year’s referendum will help the economy by making exports more competitive.

However, growth in the first half of 2017 slowed sharply as consumers felt the pinch of inflation, caused in part by the pound’s fall against other currencies.

“Firms are clearly in an exporting sweet spot, able to exploit the competitiveness gains from a low exchange rate and a firm global backdrop,” said CBI economist Alpesh Paleja.

His comments used similar language to that in a speech in March from Bank of England Deputy Governor Ben Broadbent, who referred to a “sweet spot” for manufacturers during which they could enjoy the benefits of a weaker currency, before the possible downsides of Brexit come to fruition.

The BoE announces its interest rate decision for August on Thursday. Only two out of 80 economists think it will hike interest rates from their record low level of 0.25 percent.

Paleja said the boost from the weaker pound would fade, making an agreement for frictionless, tariff-free trade with European Union critical.

“This is particularly true for (small- to medium-sized companies), as preparing for the UK’s exit from the EU is significantly more difficult for smaller companies facing greater pressure on their resources,” he said.

Separately, Britain’s National Institute for Economic and Social Research (NIESR) kept its forecasts for economic growth this year and next on hold at 1.7 percent and 1.9 percent.

It also brought forward its expectation for the first Bank of England interest rate hike in 10 years to the first quarter of next year, from the second quarter of 2019 previously.

NIESR said its forecasts were based on a return to “meaningful” productivity growth from 2018 onwards.

Reporting by Andy Bruce, editing by David Milliken

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