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Factories activity fall worse than expected following Brexit vote

Published 07/09/2016

Factories saw a worse-than-expected fall in activity after the Brexit vote
Factories saw a worse-than-expected fall in activity after the Brexit vote

The plunging pound failed to boost demand for British exports in July as factories suffered a worse-than-expected drop in activity after the Brexit vote, official figures have revealed.

Data from the Office for National Statistics (ONS) showed a sharp month-on-month contraction in the manufacturing sector in July, with activity falling by 0.9%.

This comes despite hopes that the Brexit-hit pound would deliver a shot in the arm to manufacturers by making British goods more attractive to overseas buyers.

But it was not all gloom as the figures showed overall industrial production output rose 0.1% on the month in July, which defied expectations for a contraction.

A 5.6% surge in North Sea oil and gas production helped offset the manufacturing woes, according to the ONS.

Kate Davies, a senior ONS statistician, said: "Production output in July was relatively flat with strong growth in oil and gas counter-balanced by weaker manufacturing.

"There seems to have been no immediate benefit to UK manufacturers from the devaluation of the pound."

But the ONS played down the impact of the referendum, warning over volatility in monthly figures.

Sterling eased back against the US dollar and euro after the manufacturing data, but has rallied strongly recently after industry data signalled a marked bounce back across the economy in August.

Closely-watched purchasing managers' surveys for the manufacturing and services sectors have shown a strong rebound after steep contractions in July, suggesting the initial shock of the referendum vote has begun to pass.

The ONS figures are the first official record of the manufacturing sector's performance since the June decision to quit the EU.

The fall in activity is the biggest for a year and marks the sector's third contraction in a row.

Chris Williamson, chief economist at Markit, said: "The data confirm indications from business surveys that the vote to leave the EU on June 23 had an immediate damaging impact on the economy."

But he added that, taken together with the more recent industry surveys covering August, the "overall picture is one of fairly flat manufacturing output so far in the third quarter, and a broadly stagnant economy as a whole".

Samuel Tombs at Pantheon Macroeconomics said it was "touch and go" if the wider economy would contract in the third quarter, with July's rise in ONS industrial production largely down to one-off factors.

Oil and gas production figures were boosted as the Buzzard oil field in the North Sea remained open in July, with the usual annual maintenance shutdown instead planned for September.

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