Brexit uncertainty impacting one in three firms

Will Green is news editor of Supply Management
3 June 2016

The Brexit referendum has cast a pall over UK industry with around a third of businesses reporting a negative impact, according to a survey of buyers.

The Markit/CIPS Purchasing Managers’ Indexes, covering manufacturing, construction and services, all showed expansion in May but growth was impacted by uncertainty over the UK’s place in the EU.

Manufacturing growth edged out of contraction in May to 50.1, up from 49.4 in April, and against the no-change reading of 50. Growth was driven by the intermediate and consumer goods sectors, while investment goods remained in the doldrums.

The rate of contraction in input buying, against a background of drops in work-in-hand and stores of inputs and finished products, was among the quickest seen over the past three years.

Growth in the construction sector eased to 51.2 in May, down from 52 in April and signalling the weakest overall rise in business activity for almost three years. Residential and commercial activity showed little growth while civil engineering stagnated.

A reduced flow of incoming new work contributed to cautious stock policies and input buying at construction firms, though just over half of respondents predicted a rise in output over the coming year.

The services sector index rose to 53.5 in May, up from April’s 38-month low of 52.3, though again the rate of expansion was one of the weakest seen over the past three years.

Input price inflation eased for the first time since January but was still among the strongest seen over the past two years, linked mainly to rising labour and fuel costs.

David Noble, group CEO, CIPS, said: “The EU referendum has prolonged the restraint on decision-makers with purchasers and suppliers in equal measure. Optimism was recorded at a ten-month high, though the consequences of a stay or leave outcome remain unclear.”

Chris Williamson, chief economist at Markit, said: “Growth has collapsed in manufacturing and construction, leaving the economy dependent on the service sector to sustain the upturn, though even here the pace of expansion has remained frustratingly weak so far this year.

“Uncertainty caused by the possibility of Brexit has already had a detrimental impact on one in three companies, meaning growth could rebound in the event of a Remain win.

“However, the extent of any revival may be limited by weak underlying demand: May also saw widespread ongoing concerns about the fragility of demand both at home and abroad.”

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