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EEF Suggest Manufacturing Could Recover Post-Referendum

As if the government didn’t have enough to worry about with the unknown outcome of the EU referendum, they’re having to deal with the twin crisis of the British steel industry and our home-grown manufacturing industry. Whilst the issue of British steel is moving from a search for owners towards a search for a brighter future, UK manufacturing has continued to tumble with investment at its lowest level since the financial crash, according to industry reports.

The reasons for this are plentiful, but there’s one explanation which has continued to crop up in analysts discussions of the sector – Brexit. We’ve heard plenty of doom and gloom from both sides of the debate, but there’s an increasing level of support for the notion that the fear of Britain leaving the UK is depressing the UK’s manufacturing economy.

Now, the EEF have published their latest manufacturing survey which has found that the June 23rd EU referendum has been holding back not just manufacturing, but also sectors like construction. Alongside the EU referendum, the manufacturers’ organisation pointed towards the difficult global economy, sharp cutbacks in gas and oil investment and, of course, the steel crisis. Overall, investment is at its lowest level since 2009 - a shocking indictment of the UK’s manufacturing policy.

Their sentiments were echoed by business advisors BDO, who found that the EU referendum had pushed the pause button on both investment and hiring decisions. Their output index fell to 99.7, the first time since 2013 that it’s fallen between the 100 mark which indicated UK long-term economy growth of about 2%. Peter Hemington, partner at BDO, said: “In the end, investment drives productive capacity, growth and living standards. After the referendum, we must see businesses starting to invest or we face a worrying future.”

Meanwhile, the EEF survey showed output and orders fell in the past three months for that fourth quarter running. Both balances improved, but not by as much as expected, hitting o -4% from -5% for output and to -2% from -8% for total orders in the second quarter. That positive growth has been bolstered by areas such as chemicals, transport, pharmaceuticals, plus food & drink.

Nevertheless, there are some signs that the manufacturing slowdown might have bottomed out, with the report suggesting that firms are growing more confident about the coming months. That could mean a recovery in the second half of 2016, should the UK choose to remain in the EU and “other factors holding back growth continue to wane”.

EEF’s chief economist, Lee Hopley, said: “Demand conditions in manufacturing at least seem to be heading the right direction, but the climb back to growth is still being challenged by the sluggish global economy and subdued investment at home.”

Overall, the EEF expect that manufacturing will remain roughly flat across the year, with a 0.1% fall for output this year (a sharp rethink from their previously estimated rise of 0.6%), but much will hinge on the British public’s decision on Europe. Will we remain in, or leave? That’s the question that our manufacturing industry desperately needs to know.

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