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Firms' orders hit near-three-year low due to Brexit fears, says report

Published 06/06/2016

Firms' orders fell to their lowest level for nearly three years due to growing uncertainty over the referendum, a report says
Firms' orders fell to their lowest level for nearly three years due to growing uncertainty over the referendum, a report says

Orders among UK firms plunged to their lowest level for almost three years in May due to mounting uncertainty over a possible Brexit vote, according to a report.

The BDO Monthly Business Trends survey said its Output Index - a measure of orders firms have on hand - slumped to 99.7 last month, from 100.6 in April.

This is the first time since September 2013 that the report's Output Index fell below the 100 level, which tracks the UK long-term trend growth at around 2%.

The report by the accountancy firm added that growth expectations among firms hit 99.4 from 99.5 in April, the tenth monthly fall in a row.

The report said: "This month's report reveals that the uncertainty ahead of the decision about our EU membership has cast a shadow over the UK economy."

The survey added that in the run up to the vote on June 23, firms' employment intentions continue to fall, to 101.2, from 111.3 a year ago.

BDO partner Peter Hemington said: "Private sector capital investment has been sluggish throughout this recovery, and recent official figures show sharp falls - no doubt related to Brexit fears.

"This fall has no doubt contributed to UK businesses' expectation that economic growth will fall behind its long-term trend for the first time in nearly three years.

"In the end, investment drives productive capacity, growth and living standards. After the referendum, we must see businesses starting to invest or we face a worrying future."

Last week, the UK's powerhouse service sector expanded weakly, showing a reading of 53.5 in May up from 52.3 in April, in the closely watched Markit/CIPS services purchasing managers' index (PMI).

This is one of the slowest levels of growth seen in the service sector for the past three years.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the PMI report showed the UK economy was "slowing sharply" in the second quarter amid concerns over Brexit.

Mr Tombs added: "Around one third of services firms reported demand had been detrimentally affected by uncertainty about the outcome of the referendum, in line with the proportion of manufacturing and construction firms."

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