The Strategist

British industrialists are cutting investment

09/05/2016 - 15:55

British manufacturers have changed their investment plans after seeing results of the Brexit referendum. The scandalous voting has not become a problem, but still it may add doubts about the long-term economic outlook, reports Reuters.

Chris Breeze
Chris Breeze
During the three summer months to August, industrial production in Britain has deteriorated due to lower volumes of domestic orders. This reverted a trend to improvement, which emerged in the beginning of the year, said industry association EEF and accounting firm BDO in a joint statement.

Immediately after the vote, there was no evidence of a sudden drop in activity. Depreciation of the pound sterling led to an increase in export orders, so the optimistic forecast, announced in early September, was fulfilled completely.

The Bank of England is expecting to reduce the interest rates again this year. Against theorementioned background, it may revise investment plans of the British manufacturers to the downside, since it is affected by uncertainty about future of trade relations of the United Kingdom and the EU.

The EEF’s evaluation of investment plans for the next 12 months in connection with all of the above fell to -10. This is its lowest level since the end of 2009.

According to EEF chief economist Lee Hopley, the referendum results has not sent the industry back in the direction of recession. However, results of the referendum does not give confidence that stronger growth would return in the short and even long term.

Earlier, the Confederation of British Industry (CBI) said that investment plans of the service sector companies, which account for a much larger part of the economy, fell to their minimum in the last four years.

Despite the uncertainty, a survey of 450 manufacturers revealed that companies generally expect improvements in production and volume of orders, especially for export. Intentions on employment have also improved.

EEF believes that economic growth in the UK will come to stagnation in the second half of 2016, and will remain weak in 2017. Manufacturing output in 2016 will grow by 0.4%, yet may well decrease by 0.7% in next year.

Meanwhile, British Prime Minister Theresa May said that Britain will certainly have "difficult times" once the Brexit procedure is done. At the same time, according to the Prime Minister of Britain, the British economy has responded to results of the referendum on withdrawal from the EU better than one would expect. "We have seen that figures gave mixed signals on the economic situation at the moment. I believe that the economy has responded better than some predicted after the referendum, but I will not dissemble saying that everything will go smoothly." It is noted that Theresa May will take part in the G20 summit in China, where she is going to discuss consequences of Brexit with the US president.