UK industrial optimism records biggest drop in seven years

London – Manufacturing output and domestic orders saw firm growth over the past quarter, but both are expected to slow in the next three months, according to the latest quarterly Industrial Trends Survey from the Confederation of British Industry (CBI).

Following a slowdown in activity towards the end of 2015, which spilled over into the first half of this year, the survey of 506 manufacturers showed that the sector experienced a decent recovery in the three months to July. Output rose at its fastest in two years, while domestic orders and employment also improved. Export orders were flat, but improved on the fall seen in the previous quarterly survey.

But despite this improvement in activity, optimism about the business situation during the past quarter fell at the fastest pace since January 2009, in the aftermath of the referendum result.

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

In all, 32 percent of businesses reported an increase in total orders, and 23 percent a decrease, giving a balance of +9 percent, the highest since July 2015 (+9 percent)

The survey was conducted between 27 June and 13 July. During the survey period, the pound averaged between €1.19 and $1.32, while brent crude averaged $48 (£37) per barrel, compared with $41 (£31) per barrel in the March survey period.

CBI chief economist Rain Newton-Smith, said: “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 percent, the highest since February (+17 percent)). Total order books were broadly the same as in June (-4 percent, from -2 percent in June) but export order books deteriorated (-22 percent, from -14 percent in June).