#Brexit: UK economy sees Brexit bounce for manufacturing but service sector slumps

The British Chambers of Commerce (BCC) today (10 October) published its first Quarterly Economic Survey since the UK’s EU referendum, the survey shows an improved short-term performance in the manufacturing sector set against a further slowdown in growth in the services sector which accounts for more than 75% of British GDP.

Acting Director General of the British Chambers of Commerce Dr. Adam Marshall said: “While many manufacturers have seen something of a bounce this summer, the UK's services sector has slowed significantly, and our data suggests that slower growth is likely in the months ahead.”

Quarterly Economic Survey (QES) is the largest and most representative independent business survey of its kind in the UK. It is gathered from responses by 7,076 businesses across the UK. Businesses were asked about a wide range of issues from domestic sales and orders, to investment prospects.

The survey shows that manufacturers enjoyed improved domestic and export sales compared with the previous quarter, with some benefiting from sterling's recent fall. However, the balance of service sector firms reporting improved domestic and export sales was at the lowest level seen since 2012.

The survey's results suggest that the UK economy is still growing - albeit at a lower level than before the referendum - and supports the BCC's forecast for growth of 1% in 2017, previous forecasts were for 1.8% growth. It shows that uncertainty following the vote has led businesses to lower their expectations for hiring, turnover, and investment in plant, machinery, and training.

Given this picture, the BCC is urging the government to use next month's Autumn Statement to boost business confidence - by giving the green light to key infrastructure projects such as the new runway for Heathrow and HS2 (a high-speed rail project between London and the North of England) both projects have been controversial but the government’s recent decision to override Lancashire County Council on fracking demonstrates that they are willing to take unpopular decisions on these projects.

Key findings in the Q3 2016 survey:

The balance of firms reporting an increase in advance orders is +12, up from +5. One factor may be the fall in sterling, which has made some UK manufacturers more competitive.

In the last three months, the balance of manufacturers hiring more staff rose three points to +15 from +12, although in the services sector the number fell five points to +14 from +19.

Fewer firms in both sectors expect to take on staff in the next year. For services the balance for firms (+15, down 13) is the lowest since Q1 2013.

In the services sector, many balances saw a decrease on the previous quarter

The balance of services firms reporting improved domestic sales fell sharply to +9 from +24, while the advance orders balance fell from +20 to +8 – indicating a significant slowing of growth

On services exports, the balance of firms reporting improved sales fell from +11 in Q2 to +8 in Q3 2016, while the balance of firms reporting an increase in advance orders fell further, from +13 to +5

Fewer firms in both sectors are reporting that they are confident that their turnover and profitability will improve in the next year, although both remain positive

Firms in both sectors have reported that the exchange rate is a greater concern to their business than three months ago, with 30% of services businesses (up from 15%) and 48% of manufacturers (up from 35%).

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