U.K. Industrial Orders Remain Strong

U.K. orders moved lower in June, falling back to 18 from the previous value of 26 in May. The reading for total orders is still up strongly from its 14 value in April. Export orders slowed relatively sharply in June to a ‘plus one’ reading from 19 in May; they registered a -9 reading in April.

However, total orders remain close to their 12-month average. The current value of 18 compares to a 12-month average of 20. Export orders also are close to their 12-month average which is minus-two versus the June value of plus-one. The queue standings of orders in the U.K. ranks strongly among data from 1991 as the current reading of 18 has a 97.6 percentile standing while orders are up for exports whose plus one reading has 87.5 percentile standing. Both orders series are quite strong on this historic timeline.

Data for inventories (stocks) show that stocks are at a +2 diffusion reading up from -15 in May as the appetite for inventories has improved. That is a bit stronger than the -3 reading for June. Stocks, however, are at a very low historic reading; the queue standing for the plus-two reading in June is at its lower 7.7 percentile standing.

The CBI also gives look-ahead data for the next three months. Total output is expected to be solid at 20 for June, slightly down from the 23 reading in May but stronger than the 17 reading in April. The 20 reading for June is also below the 12-month average which is at 27. The ranking for the June outlook figure is still relatively firm at 79.3% standing. That means the reading for output is higher only about 21% of the time.

The outlook for average prices fell relatively sharply in June to 58 from a 75 previous reading that had been at 71 in April. There is some tailing in the outlook for prices; the average for prices over last 12-months the reading of 62 putting the June 58 reading below the average. Although the 58 reading has fallen sharply over the past couple of months and is below its 12-month average, it still has a 97.6 percentile standing on data since 1991. The outlook for prices signals strength.

Note the right-scale left-scale chart and the tendency for overall orders and export orders to have to tracked one another fairly closely on these two preset scales. It shows that historically there were broad, common, and consistent movements on the two series. However, in this recent recovery from Covid, we see that the domestic orders series has recovered a lot faster than the export order series. That suggests the international economy is not contributing the same kind of jolt to the domestic economy as it did in the past.

We know that there have been supply chain disruptions and, of course, that the U.K. has had an historic break with Brexit that will affect structurally its export links to international trade and to the continent. There is still a war going on between Ukraine and Russia that is affecting supply chain problems and supply chain issues that linger from the original Covid crisis. How long are Ukraine-Russia problems going to linger? It's hard to say, but the war doesn't show any signs of cooling down and it continues to degrade global food stocks, fertilizer availability and mineral shipments.

The global economy is still reeling from what happened at the time of Covid, but now there are serious of other calamities that have piled one on top of the other in the wake of Covid that help make this ongoing recovery a more challenging process. Not the least of this is the rising inflation that has occurred as a result of too much fiscal and monetary assistance provided during the Covid period itself. The outlook continues to be for challenges to growth as inflation remains too high for the period directly ahead, a factor central banks seem willing to attacked somewhat aggressively – at long last.