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British CBI Sentiment Sharply Lower

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British CBI Sentiment Sharply Lower

Insight into the strength of Britain’s manufacturing sector has just been revealed in the form of the Industrial Trends Survey from the Confederation of British Industry (CBI). This metric is determined by an expert group of senior management in the manufacturing space and is composed of inputs relating to prices, costs, exports and investment intentions, as such it is a good proxy manufacturing sentiment indicator for the British economy. This months figure is -1, sharply down on the March reading of 6, the consensus estimate for this indicator was for a further expansion to 7.

Britain, along with several other developed economies, has recently been warned by the International Monetary Fund that the asymmetric nature of it’s recovery poses a threat to the sustainability of growth. The UK is undoubtedly undergoing a strong return to growth with GDP being forecast to come in at a healthy 2.7% this year. The issue is that largely the domestic retail side of the economy is driving this growth. Consumers are running down savings in a sign of optimism toward the future, they are also releasing pent up demand that built during the downturn.

This consumer lead growth in itself creates the future economic conditions that will lead to the anticipated expansion. However it also serves to mask other weaknesses that exist within the British economy. Manufacturing for example is not receiving the necessary investment that would lead to a solidification of growth down the road. Competitiveness is also being eroded as the currency strengthens and trade balances fail to grow at a stable pace. Finally, the regional disparity in the recovery must prompt action from the Government in order to divert some of the London focused growth towards the lesser performing areas outside the capitol.

In light of the UK’s performance these imbalances will not serve to hamper the current growth phase, rather they are vulnerabilities that will expose the British economy to any future shocks or downturns.

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