UK exporters feeling the heat from eurozone crisis

The CBI has issued a call on eurozone leaders to quickly resolve the Greek debt crisis, whatever the outcome of Sunday’s referendum, after the British business group’s latest poll highlighted mounting pressure on exporters.

The lobby group said its surveys of more than 750 companies across the manufacturing, retail and service sectors suggested UK economic growth lost momentum last month.

 The CBI reported a drop to +14% from +33% in May for its growth indicator, which represents the net balance of those businesses reporting a pick-up in output versus those reporting a fall. The group was recently forced to cut its outlook for the UK economy this year after official figures showed a slowdown in the opening months.

It expects the economy to have performed better in the second quarter and said the latest growth indicator pointed to “solid” activity in that April-June period. Furthermore, businesses were optimistic growth would bounce back in the next three months.

 But CBI director of economics, Rain Newton-Smith, echoed reports from UK exporters of pressures on sales to their biggest market, the eurozone, from a strong pound against the troubled euro.

 “We expect the economy to sustain a solid pace of growth over the remainder of the year as lower oil prices and inflation continue to boost real incomes and consumer spending,” said Newton-Smith.

 “But exporters face real challenges, especially from the impact of a stronger pound against the euro and still weak global export markets.

And whatever the results of the referendum in Greece, we urge eurozone leaders to move quickly towards a deal that underpins both growth and financial stability, providing certainty for Greece and the wider eurozone.”

The concerns around Greece’s potential exit from the eurozone and the region’s economic prospects were also reflected in a slowdown in hiring in Britain’s dominant service sector, according to a separate business survey published on Friday.

 The sector, which spans hotels to banks, enjoyed a pick-up in activity boding well for the wider economy, according to the closely watched Markit/Cips UK services PMI.

The poll’s main activity index bounced back to 58.5 in June from 56.5 in May, beating economists forecasts for a reading of 57.4 and well above the 50-mark dividing expansion from contraction. But the sector created new jobs at the slowest pace for six months as growth in new business also eased off.

 “Hiring and inflows of new business both slowed in June, and an escalating Greek crisis and ‘Grexit’ has the potential to destabilise economic growth,” said Chris Williamson, chief economist at survey compilers Markit.

But overall, the survey still pointed to a pick-up in UK economic growth, to 0.5% in the second quarter from 0.4% in the first three months of the year; that may well prompt the Bank of England to start raising rates from their record low, Williamson added.

 “While uncertainty caused by the Greek debt crisis rules out any imminent hike in interest rates, the post-election rebound in service sector business activity adds to the likelihood of the Bank of England starting to nudge rates higher later this year,” he said.

 Markets, however, are not pricing in a shift up from 0.5% base rates until 2016 and earlier this week Bank chief economist Andy Haldane said the next move could just as easily be down as up. He warned raising interest rates too soon could be a self-defeating move that tips the UK back into recession.

theguardian.com