Drop in UK export brought fears for pound's stability

The unwelcomed global downshift has come knocking on British doors greatly affecting prices from oil to milk.

British exports went down by 9% in July and manufacturing industry suddenly fell.  This revives fears about the pound's strength in unsteady global economic recovery.  The drop in exports during the past months was blamed on weaker chemicals demand and other manufactured goods, providing further proof that UK factories are making less to take account of the sales slowdown. 

Goods exports went plunging in July, the most in nine years.  The drop was broad-based with the U.S., Switzerland and China as the dominant declining countries outside the European Union.  The frustrating news meant manufacturing plummeted on a yearly basis for the first time in almost two years as reported by Bloomberg.

The drop suggests the dangers to U.K. economic growth from Europe's effort to be stronger and China's slowdown may be getting large enough to affect the outlook for Bank of England interest rates.  Last month, Governor Mark Carney said that rate path can withstand the volatility, Thursday's Monetary Policy Committee announcement will show whether the other eight members of the panel agree.

The ONS said output was compromised by a big drop in the weapon's manufacture from the previous month and by the traditional summer shutdown of car production lines that happened earlier than usual.  The SMMT, industry body informed Sky News that this move did not show weaker demand.

As strong pound help increase the purchasing power of UK tourists on their summer holidays abroad, sterling's strength is bad news for exporters as it costs overseas customers more to buy UK goods that made them less attractive.  The pound was slightly weaker against both the euro and the dollar following the publication of the trade data.

Howard Archer, chief European and UK economist at IHS Global Insight said, "It is evident that (UK) manufacturers are currently being particularly constrained by weakened foreign orders, which is at least partly a consequence of sterling's strength against the euro."