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CBI expects manufacturing to slow in Q3

The Confederation of British Industry (CBI) is predicting manufacturing output and domestic orders to slow over this quarter in the wake of Brexit.

According to the latest quarterly CBI Industrial Trends Survey, optimism about the business situation over the past quarter fell at the fastest pace since January 2009, in the aftermath of the referendum result.

The CBI’s outlook for the next three months is set to soften, with expectations for total new orders growth at their lowest since January 2012, output growth set to ease and headcount expected to fall slightly.

This is despite the survey of 506 manufacturers showing the sector had a decent recovery over the three months to July this year. Output rose at its fastest in two years, while domestic orders and employment also improved. Export orders were flat, but improved on the fall seen in the previous quarterly survey.

UK franchised dealers are looking at a relativley stable market in Q3 as vehicles built for delivery over the next three months have already been built and finance campaigns have long been set. The big test for consumer confidence will be during the September plate-change and then Q4.

In the immediate aftermath of the Brexit vote, sterling fell to a 31-year low against the dollar. The danger for dealers it the potential for the UK's economy to slip into recession and the knock-on effect this would have on consumer spending on big ticket items like cars.

However, commentators in the industry say longer term effects of Brexit are difficult to predict. While some dealers say the industry needs to stay positive to avoid fears becoming a self-fulfilling prophecy.

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

“We’re also seeing encouraging signs of a boost to export competitiveness from a weaker sterling. But 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.”

Newton-Smith said it is important for the Government to steady the ship with a plan and clear timetable for negotiating the UK’s relationship with the EU.

He said: “This, along with a renewed focus on industrial strategy, will help give firms the confidence they need to grow and create jobs.

“Manufacturers look forward to working with the new Government to preserve the openness of the UK’s economy to markets, skills and trade.”

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