November 12, 2007	Monday	Ziqa’ad 01, 1428

Over the past three months, manufacturing has seen positive growth in new orders across most UK regions, despite the impact of the global credit squeeze on business confidence, according to the latest quarterly Regional Trends Survey, published on Thursday by the Confederation of British Industries.

The survey said that the recent financial turmoil has depressed UK’s business confidence and export optimism in virtually all regions, “but there is little evidence that it has inflicted serious damage on manufacturing activity in the past three months. “

Order volumes have held up remarkably well, rising at the national level for the fourth quarter in a row. This is underpinned by marked growth in six regions with North West showing the strongest orders growth since records began in 1988 and the South East and London the sharpest rise since mid-2000.

Buoyant demand in the six regions was underpinned by the strength of export orders, which showed some of the strongest gains of recent years during the quarter (again, the strongest on record for the North West).

Strong output growth was also reported across these regions. Elsewhere the picture is more subdued but still positive, with modest rises in export orders supporting total demand. Output at the national level remains largely unchanged, but fell back markedly in Wales, the North East, and Scotland.

However, looking ahead, expectations for new orders in the coming three months are at their weakest for almost two years at the UK level, although they are still marginally positive. The most downbeat regions are Wales, the West Midlands and Scotland, who all expect a decline, but the East Midlands continues to stand out with a persistently positive outlook.

The recent surge in oil prices and upward pressure in raw material costs have led to a sharp increase in average costs across most regions, but it was felt most acutely in Northern Ireland, Wales and the South East and London.

In order to contain the squeeze to profit margins, manufacturers have raised domestic prices, though the picture on export prices is more mixed. The East of England and the South East and London are the two regions leading in price increases in both domestic and export markets.

Looking ahead, domestic prices nationally are expected to see a modest rise, while export prices will remain broadly the same,

Peter Gutmann of Experian, survey partner of CBI said:

“Demand for UK manufactures this year has been boosted by the eurozone’s solid performance. The fall in export optimism in the survey reflects fears of a loss of momentum as the global credit squeeze dampens growth prospects.”

CBI Principal Economist, Lai Wah Co said:

”UK manufacturers have been busy over the past three months, with strong orders prompting a healthy flow of output, particularly in the English regions.”

However this optimistic projection for UK’s manufacturing and exports is not likely to hold for long as the pound has already climbed to $2.10 for the first time since 1981 on Thursday morning, boosted by speculation that China was preparing to shift its foreign reserves out of dollars.

Thanks to China’s booming exports, the country now holds the largest reserves of foreign currency in the world. The People’s Bank of China reported last month that at the end of September, China’s foreign reserves were worth $1.434 trillion.

Meanwhile, violent storms in the North Sea has helped push global oil prices to new highs of just under $100 per barrel and, in the UK, petrol was selling at more than £1 per litre on average.

Most observers now agree that it is only a matter of time before oil hits three figures. Adding to the feverish state of the market, a report from the International Energy Agency said the cost of crude could rise to almost $160 per barrel, in the longer term, unless more was done to bring on new supplies.

In a related development gold has surged to $846 an ounce on fears of a dollar collapse and signs of spreading credit crisis in the United States, coming within a whisker of the all-time high seen at the end of the 1970s inflation era.

The apparent failure of the US Treasury’s $75 billion rescue plan for sub-prime mortgage securities and the risk of mass downgrades on US bond insurers has caused a rush for safe-haven investments, topped by precious metals and top sovereign bonds.

Gold last touched $850 an ounce at the London PM Fix in a wild spike on January 21 1980, just after the Soviet invasion of Afghanistan and the seizure of US hostages in Iran. Inflation was then running in double digits in most western economies. Gold, oil, and the dollar are said to be all feeding off each other.

In another interesting development as the dollar sank to new record lows, French President Sarkozy who is visiting the US used an address to a joint session of the US Congress to warn Washington of an impending spectre of economic war.

The French President said: “Those who admire the nation that has built the world’s greater economy . . . expect her to be the first to promote fair exchange rates. The dollar cannot remain solely the problem of others. If we are not careful, monetary disarray could morph into economic war. We could all be victims.”

The blunt warning to Washington came as the dollar’s sharp losses drove the euro to a fresh record high of $1.4730, stoking fears among eurozone businesses and governments that it would undermine growth prospects.

In response to the falling dollar and rising oil and gold prices the global stock prices also tumbled midway through the last week. The combination of events left investors worried about whether the US Federal Reserve would be able to cut rates in response to credit market turmoil without further weakening the dollar or perhaps igniting inflation. Stocks suffered, with the S&P 500 falling 2.9 per cent. The Dow Jones Industrial Average lost more than 360 points.

A bullish argument within the US is that the weak dollar has revived exports. In the third quarter, net trade made its biggest contribution to gross domestic product since 1980. With US exporters increasing their share of global trade, a key underlying cause of dollar weakness – its current account deficit – will start to decrease. This should help the US avert an economic downturn, and in the long run support the dollar.

But by weakening European competitiveness, the strong euro can be expected to put a dent in eurozone growth. That also appears to be happening. German manufacturing orders fell in September, thanks to lower orders for capital goods.