Manufacturing output and domestic orders grew over the last quarter, but optimism about the business situation fell at the fastest pace since January 2009 following the EU referendum, a survey released on Monday (25 July) showed.
According to the latest quarterly Industrial Trends Survey of 506 British firms released by the Confederation of British Industry (CBI), the total order book balance fell to -4 in July from -2, while a gauge of output over the next three months fell to +6 in July from +23 in June.
Optimism about the business environment suffered its sharpest decline in more than seven years, with the quarterly business optimism balance plunging to -47 from -5, the lowest level since January 2009.
Meanwhile, the outlook for the next three months is also negative, with expectations for total new orders growth falling to 0 in July, the lowest level since January 2012. However, there was marginally better news in terms of total orders, which climbed to +9 from -4 in the three months to July.
"Manufacturers picked up the pace over the second quarter, with output growing solidly," said CBI chief economist Rain Newton-Smith.
"We're also seeing encouraging signs of a boost to export competitiveness from a weaker sterling. But it's clear that a cloud of uncertainty is hovering over industry, post-Brexit. We see this in weak expectations for new orders, a sharp fall in optimism and a scaling back of investment plans."
The impact of the Brexit vote is expected to make its impact felt in the coming quarter, with concerns over economic and political conditions abroad as a constraint on exports orders currently at their highest level since 1983.
However, according to CBI data, the conditions in international markets have improved at the strongest pace in over six years, and a further improvement is forecast over the next three months. As a result, export orders are set to rise at an above-average pace over the next quarter.
Paul Hollingsworth, UK economist at Capital Economics said that while it would take time to properly assess the Brexit impact, the Monetary Policy Committee (MPC) was likely to implement stimulus measures next week.
"We will have to wait a while longer before we get a clearer picture of just how big the immediate impact has been," he said.
"Nonetheless, with the direction of change for the economy in the near-term fairly clear, we doubt that the MPC will wait before acting and, as such, we continue to think that it will loosen monetary policy at its meeting next week."