May's UK CBI Industrial Trends Survey suggests that the economy might still be able to rebalance a little towards manufacturing and exports despite the further recent appreciation of the pound.
"The output expectations balance weakened only a touch from +16 in April to +15 and so remained consistent on the basis of past form with a pick-up in quarterly growth in the official measure of manufacturing output from zero in Q1 to about 1% in Q2. In addition, the export orders balance picked up from -11 to -7, its strongest level since August. Although this improvement did not prevent the overall orders balance from weakening from +1 to -5, the slight slowdown in domestic demand growth implied by this is unlikely to be sustained, given the healthy outlook for UK households' real incomes", notes Capital Economics.
Admittedly, the survey has been a bit too upbeat relative to the official data in the recent past and the much weaker tone of the Markit/CIPS report on manufacturing in April suggests that the sector is not out of the woods yet. But provided the pound does not continue to appreciate, stronger domestic and overseas demand should enable the manufacturing sector's recovery to get back on track in the second half of this year.
