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UK manufacturing decline continues despite pre-Brexit vote boost

Published 09/08/2016

Manufacturing is showing signs of recovery.
Manufacturing is showing signs of recovery.

The UK manufacturing industry continued to decline in June despite improving its performance in the run-up to Britain's vote to leave the European Union.

The Office for National Statistics said manufacturing output fell by 0.3%, stepping up from a 0.6% contraction in May but slightly below economists' expectations of a 0.2% drop.

It said month-on-month growth was pegged back by a 1% drop in transport equipment and contractions from nine of the industry's 13 sub-sectors.

However, activity in industrial production painted a brighter picture, rising 0.1% month-on-month compared with a 0.6% fall in May.

It also recorded its strongest performance since 1999 in the three months to June.

Industrial output rose 2.1% over the period, compared with a 0.2% fall the quarter before, remaining in line with last month's data for gross domestic product (GDP).

The swing helped UK GDP reach a higher-than-expected 0.6% in the second quarter, up from 0.4% in the first quarter of 2016.

Andrzej Szczepaniak, UK economist at Barclays, said the positive growth from industrial production was likely to be short-lived after the referendum result.

He added: "Overall, we remain of the view that UK industrial production and manufacturing remains a cause for concern; we believe this is driven by a structural lack of competitiveness as well as Government policies (including the national living wage as well as the impending apprenticeship levy), only to be amplified by prolonged uncertainty regarding the UK and its trading relationships with the EU and the rest of the world."

A string of lacklustre surveys have pointed to a marked slowdown in the UK economy following the Brexit vote.

The closely watched Markit/CIPS UK Manufacturing purchasing managers' index showed that the manufacturing industry slumped to its lowest level in more than three years in July, hitting 48.2, down from 52.4 in June.

The Bank of England took action last week in a bid to ward off a recession by slashing interest rates to 0.25% for the first time since 2009 and delivering an emergency package worth up to £170 billion.

The manufacturing update pushed the pound lower, falling 0.38% in morning trading to 1.29 US dollars. Sterling was also down to 1.17 euros, falling 0.31%.

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