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UK economic conditions remained stagnant in the second quarter of the year amid a fall in manufacturing output and the impact of ‘relentless Brexit uncertainty’, according to the British Chambers of Commerce.
The BCC’s quarterly economic survey of over 6,800 businesses employing 1.2 million people points to the impact of Brexit, rising business costs and tougher global trading conditions are having on the UK economy, with service sector output subdued and indicators of manufacturing activity deteriorating.
In the manufacturing sector, the balance of firms reporting growth in domestic sales fell for the third successive quarter and is now at its weakest since Q2 2016. The balance of firms reporting an increase in export sales also dipped to a three-year low.
The balance of firms reporting an increase in domestic orders was at its weakest since Q4 2012 and export orders have fallen to their lowest level in four years.
The services sector saw a slight increase in the balance of companies reporting higher domestic sales and orders, as well as export sales and orders. However, the uptick in activity was not enough to outweigh the significant drop in these indicators in the first quarter ahead of the original Brexit deadline in March and so all remain very weak by historical standards.
The balance of firms expecting prices to rise has fallen to its lowest level in three years across both sectors, with the majority anticipating no change in their prices.
The BCC said that with growth in the UK economy subdued, and the evidence suggesting that business investment and decision-making are in limbo ahead of the October 31st Brexit deadline, the focus must be on avoiding a messy and disorderly exit from the EU and removing barriers to growth in the domestic environment.
“The leading business group is calling on the Prime Ministerial candidates to outline their plans for addressing the high cumulative costs of doing business, delivering major infrastructure projects, and making the skills system work for business,” the group said.
Suren Thiru, head of economics at the BCC, said: “These results indicate that underlying economic conditions in the UK remain decidedly downbeat, with intensifying uncertainty over Brexit, the rising costs of doing business in the UK and a sluggish global economy combining to suppress key drivers of growth.
“The manufacturing sector endured a challenging quarter with the downward pressure from the running down of excess stock, tougher global trading conditions and rising upfront costs driving a deterioration in a number of the key indicators. While there was a modest recovery in service sector activity, the improvement was insufficient to negate the significant slowdown recorded in the previous quarter and so, together with a weakening in manufacturing sector output, points to minimal GDP growth in the second quarter of 2019.
Adam Marshall, director general of the BCC, added: “Over the last three months, the Brexit ‘pressure valve’ has loosened a little for some firms, but the overall picture is still one of an economy in stasis. Many businesses and investors will continue to put off major decisions through the summer, hoping for a breakthrough in the Westminster impasse before the Brexit deadline on October 31st.
“The next Prime Minister must take swift and tangible steps to inject momentum and confidence into the UK economy. Businesses want to see concrete and deliverable plans to tackle barriers to growth here at home, avoid a messy and disorderly Brexit, and restore the UK’s global reputation as a place to invest and trade.
“To boost and incentivise investment, our business communities are looking for a bold growth agenda here at home. The next government must hit the ground running and introduce measures to reduce the upfront cost of doing business, deliver major infrastructure projects, and unblock the arteries of Britain’s skills and immigration systems.”
Morning update
Compass Group (CPG) has completed the acquisition of catering business R2C from French retail giant Casino Group.
The deal was agreed in February with reports suggesting it was worth an enterprise value of €25m-€30m.
The sale is part of a wider drive by Casino Group to shed assets to cut debts.
On the markets this morning, the FTSE 100 has started the week up 0.9% and almost 70pts to 7,495.3pts.
Early risers include DS Smith (SMDS), up 2.7% to 372.3p, Just Eat (JE), up 2.6% to 641.2p, Bakkavor, up 2% to 122p, Imperial Brands (IMB), up 2% to 1,882.8p and FeverTree Drinks (FEVR), up 1.9% to 2,361p.
The day’s few early fallers include Majestic Wine (WINE), down 2.7% to 250p, Premier Foods (PFD), down 2% to 33.1p and AG Barr (BAG), down 0.8% to 920p.
This week in the City
Sainsbury’s (SBRY) will released its first quarter results on Wendesday, but the real centre of attention could be on the supermarket’s AGM on Thursday with some shareholders preparing to vote against the pay package of CEO Mike Coupe in light of its failed merger with Asda.
In an otherwise quiet week, Thursday also brings a third quarter trading update from Associated British Foods (ABF).
This week will see the publication of The Grocer Price Index for June on Friday, which has hovered around zero for most of 2019 as the post-Brexit wave of inflation has ebbed out of the market.
The monthly PMI data for UK manufacturing, construction and services will be published over the next three days.
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