UK manufacturing stable, Brexit worries offsetting weak pound benefits - CBI

UK manufacturing showed signs of stability with output continuing to expand at a “solid” pace, although Brexit worries had offset any benefits to exporters of the recent fall in the pound, according to the Confederation of British Industry's latest monthly industrial trends survey.

The survey of 482 manufacturers reported that total order books strengthened slightly in the three months to June led by the food and drink sector, and motor vehicles & transport.

“Total export order books likewise remained unchanged, suggesting that the depreciation of sterling has yet to have a material impact on overseas demand,” the CBI said.

“Output growth continued to be brisk, with firms raising their expectations for the next three months further. Meanwhile, selling prices are expected to be broadly stable in the near-term.”

CBI chief economist Rain Newton-Smith said the “growing uncertainty in the run-up to the EU referendum, combined with global risks elsewhere, has offset some of the benefits of a weaker currency at this time”.

“The recent fall in the pound appears to have done little for our exporters.”

“But while British manufacturers had a tricky start to the year, there are more positive signs as output and demand stabilise.”

Economists warned that a vote to leave the EU would hit the UK's manufacturing sector hard.

Pantheon Data said it expected a vote to remain, which would lead to a stronger pound and export orders will falling at a faster rate.

"Alternatively, Brexit would lead to a more competitive exchange rate, but it likely would restrict manufacturers’ ability to export to the single market and to other countries which have trade deals with the EU. Manufacturers also would find it harder to obtain bank loans, and they would face a slowing domestic market, if the U.K. chose Brexit," Pantheon said.

The survey's key findings said 20% of businesses reported an increase in total orders and 23% a decrease, giving a rounded balance of -2%.

Thirteen per cent of businesses reported an increase in export orders and 27% a decrease, resulting in a balance of -14%, while 30% reported a rise in output volumes, and 19% a decrease, giving a balance of +11%.

Output is expected to increase over the next three months, with 35% companies expecting a rise and 13% expecting a decrease, leaving a rounded balance of +23%.

Average prices are expected to be broadly unchanged over the next quarter, with 9% of companies expecting an increase and 9% expecting a decrease, giving a rounded balance of +1% and 15% of businesses reported stocks as more than adequate to meet demand, and 5% less than adequate, leaving a balance of +10%.

IHS Global Insight chief UK economist said the manufacturing sector would "clearly be hoping that if there is a vote to stay in the EU in Thursday’s referendum, reduced uncertainty will lift demand for capital goods by encouraging companies to invest and also buoy consumers’ willingness to buy durable goods".

"Should Thursday’s referendum result in a vote to leave the EU, it seems highly likely that the UK economy would suffer markedly for some time with negative repercussions for manufacturers," Archer said.

"In particular, we think there would be a hit to to business confidence and investment from heightened uncertainty and concerns. Consumers would also likely be more reluctant and - probably less well placed - to buy big ticket items. This would not be good news for manufacturers."