UK factories wary of sterling’s fall and rising costs in new year

Manufacturers worried Brexit pressure on pound will intensify in 2017 and give rise to inflation, survey reveals. Britain’s manufacturers are bracing for more swings in the exchange rate and rising costs, as the start of Brexit negotiations in 2017 threatens to keep the pound under pressure.

Factories have had to cope with sharp rises in energy and raw material costs in recent months as the weak pound makes imports to the UK more expensive. For manufacturers that export there has been a small silver lining as the fall in the pound since the Brexit vote has made their goods cheaper to overseas buyers, but that boost has only partially offset the pressure from higher costs.

The British Chambers of Commerce (BCC) says that six months on from the EU referendum, its members in the manufacturing industry have become more worried about moves in the pound and about inflation. Its poll of 1,775 manufacturers showed 56% felt that the exchange rate was more of a concern to their business than three months ago, up from 48% in September.

There was also an increase in the proportion worried about rising prices, reflecting official figures for November that showed manufacturers faced the sharpest rise in their costs for five years. The BCC survey found 26% of manufacturers now saw inflation as more of a concern, up from 21% three months ago.

Suren Thiru, the BCC’s head of economics, highlighted the pressures on manufacturers from the pound’s drop since the referendum which has seen it lose its value 17% against the dollar and 10% against the euro.

“While the post-referendum slump in the value of sterling is benefiting some exporters, a weak currency is something of a double-edged sword, as many UK exporters also import goods and raw materials, so will be facing higher input costs,” he said.

The business group wants more help for firms to offset the pressures from the Brexit process, which has already shown signs of slowing business investment and knocking consumer confidence. Thiru highlighted business rates, a tax that firms pay on their commercial property, as one cost that could be lowered by the government.

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