British manufacturers enjoyed their strongest domestic sales growth in a quarter of a century in the three months to June, as optimism about future profits also touched a record high, according to the British Chambers of Commerce.
The business lobby group’s survey of almost 7,000 companies in the manufacturing and services sectors showed a balance of 42pc of manufacturers reported a rise in domestic sales, compared with 38pc in the first quarter. This represents the highest reading since records began in 1989.
New orders remained steady, while profit expectations also continued to rise. A balance of 51pc of manufacturing firms stated they expected profits to rise over the coming 12 months, equalling the previous record set at the end of 2013.
While activity in Britain’s dominant services sector eased in the second quarter, the BCC said domestic orders remained at robust levels. “These are strong results that show the recovery is moving forward. Our members continue to do themselves proud by showing dedication, confidence and resilience,” said John Longworth, the BCC’s director general.
Capacity constraints, which can provide warning signs that inflationary pressures are building, were evident in both sectors. Almost half of the 1,900 manufacturing firms polled by the BCC said they were operating at full steam, representing another record high. The balance of companies in the services sector that stated they were operating at full capacity fell to 44pc in the second quarter, from 42pc in the first three months of the year, although the BCC said this was still one of the highest balances recorded.
However, the survey suggested there was little evidence that these constraints were translating into higher prices along the supply chain. The BCC said intentions to raise prices actually eased during the quarter, while wage pressures weakened.
Mr Longworth urged the Bank of England to avoid any “hasty” move to raise interest rates and said declines in export and investment growth across both sectors in the second quarter supported the argument that the recovery was still too fragile to lift rates from a record low of 0.5pc. Earlier this week, Mr Longworth warned that thousands of businesses were still being starved of the vital credit they needed to begin exporting.
“These results reinforce the case against the Bank of England making any hasty decisions on raising interest rates in the very short-term,” he said. “We must nurture the business confidence we are seeing at present by giving firms the security of working in a low interest rate environment for the foreseeable future – with eventual rises both moderate and predictable.”
While exports and investment activity remain above pre-crisis levels, David Kern, the BCC’s chief economist, said the declines in the second quarter were worrying. He said concerns that the recovery was still being driven by consumer spending posed downside risks to the BCC’s forecast for 3.1pc growth this year.
“Rises in sterling, making UK exports more expensive, and uncertainties around early interest rate increases are adding to the difficulties, and our excessively large current account deficit is posing risks,” he said
Source - Telegraph Online