UK Overall Orders Look Solid Even As Export Orders Fade

U.K. industrial orders moved up to a diffusion reading of 5 in December from 3 in November in the CBI survey of the U.K. industrial sector. While a small-seeming positive number, this reading stands in the 93rd percentile of its historic queue; it is higher only 7% of the time. Exports orders continue their string of improvements, increasing to a level of -13 in December from -17 in November. But the export reading is relatively modest as it only stands in the 61st percentile of its historic queue. Clearly the U.K. economy is doing well, but its export prospects are not a driving force for its economy. The difference between total orders and export orders is an indication of how weak Europe compared to the U.K. since the U.K. does the bulk of its trading with the continent.

The outlook for the next three months shows a reading of 16, a step up from November. That metric has crept up, but it is still well below its September value of 27 and August vale of 31. Still, the outlook reading sits in the 74th percentile of its historic queue, a reasonably firm reading.

Output prices for the next three months jumped to a reading of 7 from -1. The 7 reading is the strongest since April 2014 but still has only the 64th percentile standing. It is interesting that the prices-expected metric has been able to rise in a period when oil and commodity prices are falling and global inflation is generally tempered or falling.

On balance, the U.K. industrial survey paints a firm picture of the U.K. industrial sector. The chart shows that the overall industrial orders reading is generally improving and stands at a relatively strong historic reading. The overall orders reading continues to push higher even in the face of considerably weaker foreign orders. And despite weak foreign orders, the outlook has perked up further as of December. One view of this is that the U.K. is surging against the tide of euro-weakness and will be forced back to a weaker growth posture by the overwhelming weakness in Europe. At the moment, that is my preferred understanding of the situation because I doubt that the U.K. has enough strength to help pull Europe up into a higher growth orbit. And because I think Europe's weakness is going to linger for some time.