12 June 2018

The continued political uncertainty over the Brexit negotiations is weighing on business investment, a new survey has suggested.

According to the Manufacturing Outlook published by EEF, the manufacturers’ organisation, and accountancy and business advisory firm BDO LLP, the UK’s manufacturers are seeing last year’s very strong growth slowly drifting away.

Covering the second quarter of this year (2018 Q2) the survey shows that output and order balances both remain positive despite moving down, the gap between exports and domestic orders has widened and growth potential in major export markets has eased.

Commenting on the findings, EEF Chief Economist Lee Hopley noted that the durability of the UK’s manufacturing growth is looking more fragile as many of the positive forces driving expansion last year – such as a resurgent Eurozone, a surge in global manufacturing investment and a competitive pound – are starting to fade.

“New or heightened uncertainties have also come into play, not least what feels like crunch time in the Brexit negotiations which have led to amber lights flashing again on the business investment outlook,” she added.

Based on responses from 337 companies, the survey found that the gap between export and domestic orders widened in the second quarter, with export orders seeing the balance move from +29% in Q1 to +20% in Q2 and domestic orders falling from +21% to +9%.

Although investment intentions remain positive, they have almost halved since the Q4 of 2017, dropping from +18% to +10%.

That, the EEF argues, is very much at odds with the picture it would expect to see given the expectations of continued output growth and emerging capacity constraints and suggests that the continued political uncertainty of Brexit negotiations is weighing on business investment.

Nevertheless, the outlook for firms in the second half of 2018 remains firm, it concludes, with expectations for output standing at +26% and for orders at +20%.