U.K. Business Confidence Falls; Prompts Similar Fate for FTSE

The CBI survey finds confidence for the upcoming quarter is at its lowest point since 2009.
By Lisa Botter ,

Manufacturing conditions in the U.K. are expected to be dampened in the next quarter due to Brexit, after signs of growth in the second quarter, according to a survey released today.

The CBI Industrial Trends Survey showed a recovery in the manufacturing sector for the three months to July. Output increased at the fastest pace in two years as domestic orders and employment improved. Export orders were flat.

Of the 506 manufacturers polled, 16% reported an increase in the volume of output in the past three months, the highest since July 2014. Total orders were up by 9% and domestic orders rose by 11%. Export orders were flat at -2% compared with readings of -7% from the previous quarter.

However, the respondents gave a grim view of the upcoming quarter, which will bethe first full quarter since the U.K. voted to leave the European Union.  Only 5% of firms said they were more optimistic about the general business situation than three months earlier, 52% said they were less optimistic, giving a balance of -47%. This is the lowest reading since January 2009.

Total new orders are expected to be flat in the next quarter.

The FTSE 100 fell, and was recently down 0.10% at 6,723.78.

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

Manufacturers are scaling back investment, according to the survey. Intentions for investment in buildings over the next 12 months decreased to -23% last quarter from +6% in April. Intentions to invest in plants and machinery were down to -5% from 17% in April.

Political and economic uncertainty was the most cited reason for a constraint on export orders, with 53% of respondents citing this reason.

For July monthly book orders were broadly the same at -4%, compared with -2% in June. Economists were expecting a number of -6%.

However, export order books deteriorated in June to -22%, from -14% in June.

This comes after another key economic indicator on Friday dropped more than expected. July's flash manufacturing PMI figure from Market Economics fell dramatically against the June figure and missed expectations. This was one of the first PMI readings to have responses taken after the U.K. voted to leave the EU on June 23.

The July reading fell to 49.1 from 52.1 in July, a 41-month low. Economists were expecting a reading of 48.7.

The flash services PMI index was at 47.4, down from 52.3 in June, against a forecast of 48.8.

A reading of below 50 signals contraction.

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