It may not have been long ago that new prime minister Boris Johnson was heard to mutter the expletive”F*** business!” but today his premiership was welcomed by the Confederation of British Industry (CBI).
Carolyn Fairbairn, director-general of the CBI, said: “Many congratulations to Boris Johnson. British business shares your optimism for the UK. Let’s work together to get our economy back on track and working for communities everywhere.
“Business needs three things in the first 100 days. A Brexit deal that unlocks confidence; clear signals the UK is open for business; and a truly pro-enterprise vision for our country.
“On Brexit, the new prime minister must not underestimate the benefits of a good deal. It will unlock new investment and confidence in factories and boardrooms across the country. Business will back you across Europe to help get there.
“Early signals back home also matter. From a new immigration system to green-lighting major infrastructure, there is no time to waste.”
Earlier in the day the CBI said manufacturing activity dropped in the quarter to July, but added that firms expect to see a slight recovery in the next few months, in its latest quarterly Industrial Trends Survey.
The survey of 291 manufacturing firms showed that optimism fell at the fastest pace since July 2016 – just after the referendum – and investment spending plans weakened again.
New orders declined sharply in the quarter to July: both new domestic and new export orders fell at their fastest respective paces since the financial crisis. And overall order books were below “normal” to the greatest extent since 2010. Meanwhile, export optimism declined at a brisk pace.
Manufacturers continued to grow their stocks of raw materials and finished goods, but at a slower pace than in the three months to April, when stocks were increased at the fastest pace on record. Firms expect their stocks of finished goods to fall a little over the quarter ahead, but stocks of raw materials and work in progress are expected to remain stable.
Rain Newton-Smith, CBI chief economist, said: “As the tailwind from stockpiling weakens, clouds are gathering above the manufacturing sector. It’s being hit by the double-blow of Brexit uncertainty and slower global growth.
“With orders, employment, investment, output and business optimism all deteriorating among manufacturers, it’s crucial for the new prime minister to secure a Brexit deal ahead of the October deadline. And get on with pressing domestic priorities from improving our infrastructure to fixing the apprenticeship levy.
“This will allow firms to focus on investing in new technology and tackling the skill shortages that plague this sector.”
Tom Crotty, group director of chemical giant Ineos and chair of CBI Manufacturing Council, said: “With activity contracting, sentiment deteriorating, and key investment decisions on hold, there can be no clearer evidence of how much Brexit uncertainty is continuing to hold back the UK’s manufacturing sector.
“It is critical that the next prime minister puts an end to the deadlock so that manufacturers have the certainty needed to invest in their growth and productivity.”
Investment intentions for the year ahead deteriorated compared to last quarter, with firms expecting to spend less on both tangible and intangible investments. In addition, headcount dropped in the quarter to July at their fastest rate since April 2010. However, firms expect employment to pick up again next quarter.
Although pre-Brexit stockpiling boosted growth in the first quarter, the underlying momentum of the UK economy is expected to remain modest (contingent on a Brexit deal being ratified by October, which remains the major risk to the UK economic outlook). Meanwhile, global growth is expected to slow as trade tensions continue to erode world trade flows.
Key findings of the survey included a tenth of firms saying they were more optimistic about the general business situation than three months ago and 42% were less optimistic, giving a balance of -32%. Optimism about export prospects for the year ahead (-29%) worsened compared last quarter (-21%!).
In addition, 19% of firms said the volume of output over the past three months was up and 30% said it was down, giving a balance of while 24% of businesses reported a fall in new orders, and 38% reported a decrease, giving a balance of -15% compared to +5% in the three months to April.
Domestic orders dropped (-19% from +4% in April), and export orders fell (-28% from -3% in April), both at their respective quickest paces since the financial crisis.