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Unexpected slowdown of manufacturing sector, but it’s still at a three-year high

Concerns over an unexpected slowdown of the manufacturing sector led to a fall in the pound when the PMI figures were released in early July. The latest PMI figures revealed a fall to 54.3, however, the sector hasn’t fallen into contraction. Growth in exports also proved disappointing, as was the level of new orders.

Business uncertainty is thought to be a contributing to the unexpected fall, but there are other issues too.

Commenting on the figures, Rob Dobson, who serves as the senior economist at HIS Market said:

“The main factor driving the broad slowdown in June was a steep easing in the rate of increase in new order intakes.”

Manufacturing at a three-year high

As George Nikolaidis, Senior Economist at the manufacturers’ organisation EEF, made clear, it’s not all bad news for the manufacturing sector.

Nikolaidis stated:

“Despite a broad-based slowdown in the rate of expansion in June, manufacturing activity for the last quarter still came in at a three-year high, pointing to a solid contribution from the sector to growth. This adds to recent data over the past few months indicating that industry will continue to support the UK economy by providing a counterweight to slowing services output.”

The EEF has also stressed the importance of the government providing some clarity over its Brexit strategy so the manufacturing sector can start making firm plans regarding recruitment and investment.

Economic activity slows among other sectors

It should also be noted that the slowing in economic activity wasn’t just limited to the manufacturing industry; both the service and distribution sectors were affected in the last quarter, according to a CBI survey.

Commenting on the latest survey, the CBI’s chief economist, Rain Newton-Smith said:

“Growth has slowed across our surveys for a second successive month and expectations for the quarter ahead have cooled.

"With the economy shifting down a gear, and higher inflation eating into household incomes, it’s vital the Government creates the right environment for businesses to continue contributing to the country’s prosperity.

Manufacturing, productivity and innovation

There have already been calls for the government to do more to enhance productivity and innovation in the manufacturing sector, which is going to be essential to all industries as the UK comes out of Europe. And in a press release issued by the CBI, it reiterated the need for government to assist businesses by providing support for improved innovation, infrastructure and exporting.

Price of Hinkley Point C to rise

Concerns have been raised regarding the rising cost of the Hinkley Point C project, and there’s speculation about delays too.

Several media sources have reported that the price of the new nuclear plant will rise by a further £1.5 billion. However, the Guardian reports that the developer, EDF, stated the overspend could exceed 2 billion, leading to a total cost of more than £20 billion for the reactor.

Nevertheless, despite the reported overspend and rumours regarding a delay in the building of the plant, EDF has stated that it still anticipates completing the Somerset-based reactor on schedule by the end of 2025.

The government also insists that the project is still ‘on track’, and it recently reaffirmed its commitment to the nuclear sector.

Hinkley C Progress

Back in March, the French-owned company EDF released details of the progress being made on the ambitious Hinkley Point C nuclear plant, which received government approval earlier in 2017.

In a press release, EDF said there was 1,600 workers on the site daily, work was progressing on the seawall and concrete had been poured ahead of the construction for the power station galleries.

Speaking at the time, Hinkley Point C Project Director, Philippe Bordarier said:

“The regulator’s consent for construction of the first safety-related structure at Hinkley Point C shows our commitment to the highest standards of quality and safety. We’re making good progress on many fronts as a result of the successful collaboration between all our teams.”

Hinkley C Controversy

Plans for the plant have caused controversy from the outset, with environmental groups and parties being among those vocal in their opposition to it.

However, others argue the Hinkley C is essential to job creation and say it will kickstart a new generation of nuclear power in the UK.  And as the UK turns its back on fossil fuels like goal, many believe that nuclear power is the way forward for a cleaner, greener.

Government dedication to nuclear research

In a statement issued by the Department of Business, Energy and Industrial Strategy, the UK’s Business and Energy Secretary, Greg Clark, attempted to allay concerns over future collaboration with Joint European Torus (JET), an organisation that plays a vital part in nuclear fusion research.

Mr Clark stated that “the government is taking every possible step to secure its future and to maintain highly-skilled jobs in the UK.”

The minister also stated that the government would continue to underwrite JET after the UK officially leaves the European Union.

Chemical and pharmaceutical sector speaks out about Brexit

Amid fears that Brexit could force some chemical manufactures to move overseas, the Chemical Industry Association (CIA) has reiterated what it wants to see from the final deal with the EU. Among its priorities are tariff free access to the single market, ‘access to appropriately skilled people’ as well as ‘regulatory continuation and consistency’.  

Post-Brexit concerns for the pharmaceutical industry

The pharmaceutical industry is also facing considerable uncertainty regarding the potential effects of Brexit.

In June, the Association of the British Pharmaceutical Industry urged the sector to ‘prepare for a crisis’ should a deal not be made early, according to The Telegraph.

In the worst-case scenario, the pharmaceutical sector could be left with restricted access when it comes to selling in Europe and be faced with substantial restructuring costs. In addition, there have been fears regarding access to medicines post-Brexit, although ministers have acted to quell these worries.

‘Hard’ or ‘soft’ Brexit?

Pressure has been put on the Prime Minister to opt for a hard Brexit, which would mean exiting the single market.

However, Theresa’s May’s failure to secure a majority in the recent general election means she doesn’t have the firm negotiating hand that she has hoped for; this might force the UK to take a different approach.

And now there is talk that the EU might be prepared to allow the UK to stay in the single market, in what would be considered by some as a ‘soft Brexit’.

Calls for a transitional deal

Many in the business community and some ministers are keen to pursue a transitional deal to soften the impact of leaving the EU; this is a sentiment that is echoed by the CBI, and there has been pressure on the Brexit secretary David Davis to achieve this.

Further the EEF, which represents manufacturers, has stated that businesses need to be informed about the nature of any transitional deal, including how long it will last for.

At a recent conference, Terry Scuoler, Chief Executive of EEF, stated:

“UK businesses need to know soon what arrangements will be in place after March 2019, to be able to plan, make investment decisions and have confidence that an orderly and carefully managed approach to Brexit is underway.

“If they don’t have that assurance there will come a tipping point, sometime in 2018, when boards in the UK and elsewhere will need to make decisions based on the state of the negotiations at that point. They cannot wait until the end of the process for confirmation of a deal on our departure or future trading relationship.

The CIA is also in favour of a transitional deal, stating:

“We believe that staying in the single market for that appropriate transition period would help support trade, investment, jobs and overall economic growth in the critical time taking us to exit from the EU and our future new trading relationship.”

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