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Manufacturing sector 'essentially at a standstill in May' amid Brexit fears

Published 01/06/2016

The manufacturing sector remained close to stagnation amid uncertainty over the EU vote
The manufacturing sector remained close to stagnation amid uncertainty over the EU vote

Britain's manufacturing sector eked out modest growth last month after a shock contraction in April, but remained close to stagnation as Brexit fears hit activity.

The closely-watched Markit/CIPS UK Manufacturing purchasing managers' index showed a reading of 50.1 in May, up from 49.4 in April, which had marked the first contraction for more than three years.

A reading above 50 signals growth.

The report reveals that more than a third of manufacturers surveyed believe uncertainty over the EU vote has had a detrimental impact on their business.

Of those, 8% said the impact was "strongly detrimental".

Economists said Brexit fears are putting off spending and investment decisions, while a slowdown in the global economy has also impacted demand for British goods from abroad.

Howard Archer, chief UK and European economist at IHS Global Insight, said the manufacturing sector was "essentially at a standstill in May".

Rob Dobson, senior economist at survey compiler Markit, added: "Softer global growth is weighing on new export orders.

"There are also signs that increased client uncertainty resulting from slower growth and the forthcoming EU referendum is weighing on investment spending."

The survey revealed that domestic orders rose during May, but demand from abroad fell for the fifth month in a row, with reports of weaker sales to markets such as Russia and China and due to Brexit uncertainty.

There were also job losses seen in the sector for the fifth straight month, although the report showed the rate of reduction in employment eased to a three-month low and was " modest overall".

The weak manufacturing performance reinforces expectations for a sharp slowdown in the wider UK economy in the second quarter , with economists pencilling in the worst performance since 2012.

James Smith, economist at ING, is predicting UK growth to drop to around 0.25% between April and June, down from 0.4% in the first three months of 2016.

This would be the slowest growth since the end of 2012.

Mr Smith said: "If the UK votes to remain in the EU, we expect activity to rebound, although this may not be felt until the fourth quarter as it will take some time for corporates to form and implement fresh hiring/investment plans.

"Conversely, if the UK leaves, the economy may see a more prolonged dip in activity, which could prompt the Band of England to cut rates to shore up confidence in the near-term."

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