Although the manufacturing and the service sectors have been shaken as an outcome of the referendum, the fall of the sterling has boosted the value of Britain’s exports as well as boosting the cost of its imports. The coming cut in interest rates will also play a major role in Britain’s immediate future.
According to a survey although British manufacturers reigned in their investment plans following Britain’s historic referendum, although the immediate impact appears to be negligible, however, on the long term, the health of its economy is likely to be significantly dented.
According to EFF, an industry association and accountancy firm, during the last 3 months, manufacturing output has decreased significantly as domestic orders have become sluggish. However, there was no sign of a sudden drop in manufacturing activity, as was predicted, before Brexit. The plunge in the value of the pound has boosted Britain’s export orders.
Britain’s central bank, the Bank of England, has disclosed it is likely to cut interest rates again this year in view of weaker flow of fresh investments into the economy. This is line with predictions that Brexit will have a significant long term impact on the British economy as well as impact its future trading ties with the European Union.
The EEF’s gauge of fresh investment plans for the next 12 months dipped a point to -10, it’s lowest since late 2009.
“While the referendum outcome appears not to have pushed the sector back into recession, the results do not provide confidence that a return to stronger growth is on the cards this year either,” said Lee Hopley, EEF’s chief economist.
More significantly, the Confederation of British Industry has stated last month that new investment plans by service companies, which accounts for a major portion of Britain’s economy, are hovering near their 4 year nadir. The service industry contributes more to the British economy than its manufacturing brethren.
The survey shows than 450 manufacturers are optimistic about improving their export orders. Employment intentions have also nudged up marginally.
As pointed out by EFF, just as the weaker pound has boosted Britain’s exports, it has also pushed up the cost of its imports. According to recent surveys, inflation signals have been detected in the construction and manufacturing sectors.
EFF’s forecast for the British economy remains bearish, especially in the second half of 2016 and the beginning of 2017. It expects manufacturing activity to rise by 0.4% this year and to fall by 0.7% in the next year.