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UK growth stalling amid manufacturing slowdown

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Adam MarshallAdam MarshallThe UK's economic growth is stalling amid a slowdown in manufacturing, according to the British Chambers of Commerce’s Quarterly Economic Survey – the largest private sector survey of business sentiment and a leading indicator of UK GDP growth.

The BCC – whose member organisations include Swindon Chamber of Commerce – surveyed 6,800 businesses employing around 1.2 million people. The latest results were published today (Monday, July 1).

The quarterly survey is closely watched by policymakers including the Bank of England, and the latest results, says the BCC, points to the impact that relentless Brexit uncertainty, rising business costs and tougher global trading conditions are having on the UK economy, with service sector output subdued and indicators of manufacturing activity deteriorating.

In the manufacturing sector, the balance of firms reporting growth in domestic sales fell for the third successive quarter and is now at its weakest since Q2 2016.

The balance of firms reporting an increase in export sales also dipped to a three-year low.

And the balance of firms reporting an increase in domestic orders was at its weakest since Q4 2012 – seven years ago – while the corresponding balance for export orders was at its lowest in four years.

The services sector saw a slight increase in the balance of companies reporting higher domestic sales and orders, as well as export sales and orders. However, the uptick in activity was not enough to outweigh the significant drop in these indicators in the first quarter ahead of the original Brexit deadline in March and so all remain very weak by historical standards.

The balance of firms expecting prices to rise has fallen to its lowest level in three years across both sectors, with the majority anticipating no change in their prices. Although the balance of firms reporting improved cash flow picked up in the quarter, it remains low by historic standards, which is concerning as cashflow is a key indicator of financial health.

With growth in the UK economy subdued, and the evidence suggesting that business investment and decision-making are in limbo ahead of the October 31 Brexit deadline, the focus must be on avoiding a messy and disorderly exit from the EU and removing barriers to growth in the domestic environment.

The leading business group is calling on the Prime Ministerial candidates to outline their plans for addressing the high cumulative costs of doing business, delivering major infrastructure projects, and making the skills system work for business.

Dr Adam Marshall, director general of the British Chambers of Commerce, said: “Over the last three months, the Brexit ‘pressure valve’ has loosened a little for some firms, but the overall picture is still one of an economy in stasis. Many businesses and investors will continue to put off major decisions through the summer, hoping for a breakthrough in the Westminster impasse before the Brexit deadline on October 31.

“The next Prime Minister must take swift and tangible steps to inject momentum and confidence into the UK economy. Businesses want to see concrete and deliverable plans to tackle barriers to growth here at home, avoid a messy and disorderly Brexit, and restore the UK’s global reputation as a place to invest and trade.

“To boost and incentivise investment, our business communities are looking for a bold growth agenda here at home. The next government must hit the ground running and introduce measures to reduce the upfront cost of doing business, deliver major infrastructure projects, and unblock the arteries of Britain’s skills and immigration systems.”

A separate survey – the IHS Markit/CIPS Purchasing Managers’ Index, also published today – also found manufacturing at a 76-month low, with output scales back as new order inflows contract, and business confidence dipping amid ongoing uncertainty.

“The downturn in UK manufacturing deepened during June, as the impact of firms unwinding stockpiles built before the original Brexit date continued to reverberate through the sector and exacerbate weak demand. This led to solid decreases in both production and new orders, which sank the headline PMI to its lowest in almost six-and-a-half years," said Rob Dobson, director at IHS Markit.

“Demand from the domestic market weakened, while the additional constraint of slower global economic growth meant new export business fell at one of the fastest rates since late-2014.

“Although the consumer goods sector was able to
eke out further output growth, the rate of expansion slowed sharply. Solid contractions at intermediate and investment goods producers also suggested that businesses were cutting back on both day-to-day and capital spending in increasing numbers.

“The stranglehold of sustained Brexit-related uncertainty and disruption also weighed heavily on business confidence and employment, as optimism ebbed to one of its lowest levels in the survey history and staff headcounts were reduced for the third straight month.

“There will need to be a substantial improvement in economic conditions at home and overseas, alongside reductions in both Brexit and domestic political uncertainties, if manufacturing is to see a sustained revival in the coming quarters.”

Commenting, Mike Thornton, head of manufacturing at Swindon-based audit, tax and consulting firm RSM, said: "while manufacturers benefitted from a strong start to the year due to businesses and households pulling forward purchases ahead of the original Brexit deadline; we could now see slower growth, which could signal a period of recession across the sector globally.

‘Although the decline in activity is being seen across the globe; in the UK, Brexit and the uncertainty it brings is impacting the industry regarding investment. Only last week, Vauxhall confirmed it would build the next generation of the Astra model in Ellesmere Port if we avoid a no deal Brexit – highlighting the real need for clarity to boost the sector.’