Brexit ambiguity impacts industry growth prospects

Posted on 25 Jul 2016 by Jonny Williamson

Manufacturing output and domestic orders saw firm growth over the past quarter, but both are expected to slow over the next three months, according to the latest quarterly CBI Industrial Trends Survey.

Following a slowdown in activity towards the end of 2015, which spilled over into the first half of this year, the survey of more than 500 manufacturers shows that the sector had a decent recovery over the three months to July.

According to the CBI, output rose at its fastest in two years, while domestic orders and employment also improved. Export orders were flat, though they improved on the fall seen in the previous quarterly survey.

Yet despite this improvement in activity, optimism regarding the business situation over the past quarter fell at the fastest pace since January 2009, in the wake of the referendum result.

Meanwhile, the outlook for the next three months is set to soften, reported the CBI, with expectations for total new orders growth at their lowest since January 2012, output growth set to ease and headcount expected to dip.

Looking ahead to the coming quarter, concerns over economic and political conditions abroad as a constraint on exports orders are at their highest level since 1983.

Yet, competitiveness in international markets has improved at the strongest pace in more than six years, with a further boost expected next quarter. As a result, export orders are set to rise at an above-average pace over the next quarter.

Investment is also expected to be lower over the coming year compared with the past 12 months, with planned capital expenditure on buildings and plant & machinery easing from the multi-decade highs seen in the previous survey. Nevertheless, both were still broadly in line with average levels.

Rain Newton-Smith, director of Economics, CBI
Rain Newton-Smith, director of Economics, CBI.

CBI chief economist, Rain Newton-Smith commented: “Manufacturers picked up the pace over the second quarter, with output growing solidly. We’re also seeing encouraging signs of a boost to export competitiveness from a weaker sterling.

“But it’s clear that a cloud of uncertainty is hovering over industry, post- Brexit. We see this in weak expectations for new orders, a sharp fall in optimism and a scaling back of investment plans.

“So, it’s important now for the new Government to steady the ship with a plan, and a clear timetable, for negotiating the UK’s relationship with the EU. This, along with a renewed focus on industrial strategy, will help give firms the confidence they need to grow and create jobs.

Separately, the CBI published monthly figures for July, which showed that output growth improved slightly (+16%, the highest since February (+17%)). Total order books were broadly the same as in June (-4%, from -2% in June) but export order books deteriorated (-22%, from -14% in June).