Export Boom? Eurozone Shows Britain How it’s Done

Feted by some British newspapers as proof of a Brexit vote windfall, Britain’s recent export recovery ranks as the worst among Europe’s major economies, according to one closely-watched measure.

Surveys of manufacturers across Europe published by data firm IHS Markit on Monday underlined Britain’s challenge as it tries to become an export-led dynamo outside the European Union.

The export orders gauge of the UK Markit/CIPS Purchasing Managers’ Index slid to a five-month low in June.

While still indicating growth in exports, it left Britain as the weakest performer in terms of foreign orders, barring Greece, among big western European economies for a fourth month running.

That’s a poor return for the pound’s 12 percent fall against a range of currencies since the Brexit vote a year ago.

It also casts doubt over the belief among some Bank of England officials that strong exports will help make up for a slowdown in consumer spending, suggesting the British economy could cope with a first interest rate hike in a decade.

“Sterling’s depreciation has been the least successful in Britain’s post-war history,” said Samuel Tombs, economist at consultancy Pantheon Macroeconomics consultancy.

Since sterling began to fall at the end of 2015, net trade has dragged on the economy, unlike after earlier sharp falls in the exchange rate in 1967, 1975, 1992 and 2007/08, Tombs said.

Some indicators have suggested exporters are doing well.

The Confederation of British Industry’s gauge of manufacturing exports, which is based on a different methodology to the PMIs, hit a 22-year high in June.

But the official data is more muted: goods trade export volumes rose at an annual rate of 5.3 percent in the three months to April, the best showing since January 2016 but still below rates seen through most of 2015.

As well as putting Britain’s export recovery into context, the latest figures suggest Britain’s plan to become an export-led “champion of free trade” — as trade minister Liam Fox put it — is not entirely in its own hands.

Its success will hinge just as much on how well its competitors fare in winning business in the same markets and, on that score, the euro zone is showing its muscle.

“I think that is a reflection of the euro area, in terms of them winning global trade gains due to the weak euro,” Chris Williamson, chief business economist at IHS Markit, said.

The euro is 17 percent weaker against the U.S. dollar than at the end of 2014, despite a recent rally.

Part of the underperformance of British exporters in relation to the euro zone may reflect the fact that they have hiked selling prices faster, to help recoup rising energy and imported material costs exacerbated by the weak pound.

While the euro zone’s export price index rose 2.7 percent between the third quarter of last year and the first quarter of 2017, Britain’s increased more than 8 percent.

Increased volatility in sterling, which historically has been more stable than the euro against the dollar, might also be weighing on potential buyers of British goods.

“It’s not so much that the UK is doing badly, it’s just that the euro zone is doing very well at the same time,” said Williamson.

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