Manufacturing slowdown worsens post-Brexit to add to recession concerns

UK manufacturing output declined at a faster pace post the Brexit vote last month, the CBI Industrial Trends survey indicated on Monday, which also sent business optimism plunging at its fastest rate in seven years.

The acceleration of the manufacturing slowdown has raised further concerns about the health of the economy following the worrying flash purchasing managers' index (PMI) reading last week.

The CBI Industrial Trends survey, which was carried out post the Brexit decision, showed the balance of total orders fell only to -4 in July from -2 in June, though this was was slightly better than the consensus forecast of a fall to -6.

Export orders, despite the weakness of the pound, were down to -22% from -14% in June.

Furthermore, quarterly business optimism plunged to a balance of -47 in the last three months, a significant worsening from -5 in Q2 and well below the consensus estimate of -15.

New orders are expected to be flat in the third quarter as a whole, the worst expectation since early 2012.

A small majority of manufacturers expect to cut headcounts and to reduce investment in plant and machinery.

Output during the last three months rose at its fastest in two years, while the falling pound has increased competetiveness, the CBI said, with export orders set to rise at an above-average pace over the next quarter.

“But it’s clear that a cloud of uncertainty is hovering over industry, post-Brexit," said chief economist Rain Newton-Smith. "We see this in weak expectations for new orders, a sharp fall in optimism and a scaling back of investment plans."

Economist Sam Tombs at Panthon Macroeconomics said the survey showed that manufacturers are preparing for torrid trading, despite the weaker pound.

"In short, the survey adds to evidence that the economy is heading for a recession," he concluded.