Brexit: tough times for British manufacturing

LONDON – Optimism among British manufacturers fell in July to its lowest level since early 2009 after Britain’s decision to leave the European Union, a survey showed yesterday, even as output rose in the past three months.

Quarterly numbers from the Confederation of British Industry showed total orders in the three months to July rose to +9 from -4 in April, the highest in a year and well above a historical average of -1.

But the quarterly business optimism balance plummeted to -47 from -5, the lowest since January 2009 around the nadir of the global financial crisis. The survey adds to signs the Brexit vote might be starting to take a toll on Britain’s already slowing economy, following a survey from Markit that suggested business activity is declining at the fastest rate since 2009.

“In short, the [CBI] survey adds to evidence that the economy is heading for a recession,” said Samuel Tombs, economist at Pantheon Macroeconomics.

“The business optimism balance is a good leading indicator of manufacturing output and points to a major slump in production ahead.”

The gloomy outlook among manufacturers will no doubt catch the eye of Bank of England officials, who are trying to decide how aggressively to act at their August policy meeting to cushion the shock of the referendum vote.

The CBI survey is regularly cited in the Bank of England’s quarterly economic forecasts, the next of which are due on August 4.

The CBI’s monthly numbers also suggested tough times may lie ahead for manufacturing, which accounts for around 10% of British economic output.

The total order book balance from its monthly industrial trends survey fell to -4 in July from -2 but remained well above a long-running average of -15. But expectations for output over the next three months fell to the lowest level this year.

“Manufacturers picked up the pace over the second quarter, with output growing solidly,” Rain Newton-Smith, CBI chief economist, said.