British Companies Bullish on Economic Strength, but Pound Dips

The British economy, despite being free from the high-profile catastrophes during the past year that dogged progress in the United States, has been the subject of trepidation from corporate giants and investors alike recently.

There has been no such series of bank collapses or near-insolvent government coffers on Britain's shores. In contrast, last year, there was a host of large-scale fiscal disasters in the United States, including the demise of some long-established banks and a need for the US government to raise the debt ceiling to be able to borrow more money to stop the country becoming insolvent, despite its already very high national debt.

The anomaly amid these two yardstick economies is that during the course of last year, the US dollar remained very buoyant against all other majors despite these weaknesses, which could possibly be down to a highly productive workforce and inflation that became well under control before it did in Europe and the United Kingdom.

Today, a potential beacon of light for the British economy has emerged in the form of a report by PriceWaterhouseCoopers, which indicates that Britain may be well positioned to increase its standing as a global hub for manufacturing.

Such a report may come as a surprise to many, as Britain, along with many other Western countries with high-cost bases, is not often viewed as a nation with attractive entry points for goods manufacturers due to high salaries, energy costs, worker shortages, high taxation, logistical issues and more recently, the added cost and bureaucracy associated with Brexit.

Indeed, British firms, along with other European and American firms, often outsource their manufacturing to partners in other regions of the world rather than manufacture in Western nations.

Therefore, this report by PriceWaterhouseCoopers is particularly interesting. The company conducted a survey of more than 200 senior manufacturing executives with the help of a British accountancy firm, which concluded that a majority believed Britain was becoming a more competitive place to locate industrial production than 12 months ago.

There is manufacturing in the United Kingdom, some of which has been flourishing for many years. Companies such as BAE Systems, Jaguar Land Rover, Nissan Motor Company, GSK and Rolls Royce are all doing very well and are globally respected for their high quality of science and engineering, and most of these are at the higher end of cost point within their sector.

The report stated that Britain had gained ground as a competitive region for manufacturing over neighbouring France and Germany, both countries with highly advanced manufacturing industries, but lags behind China and the United States.

Perhaps that would go some way to defining the reason why the British pound still languishes against the US dollar this morning, despite the positive position that many UK CEOs view their host nation as a manufacturing base for 2024.

The pound decreased in value against the US dollar, FXOpen having recorded a downturn from 1.2741 yesterday close to 1.2728 as of the time of writing.

Britain's manufacturing output has been declining for approximately a year and a half; however, whether it may increase if the Bank of England reduces the cost of borrowing this Spring is yet to be known, and even if that does happen, the US Federal Reserve is talking of reducing rates too, therefore not giving the UK any significant advantage over the US.

However, it is a dynamic to keep an eye on, as manufacturing output is a clear measure of the health of a national economy.