Wednesday 21 August 2019

Companies face fall in UK orders as Brexit bites

Irish rate of contraction the fastest since 2013, AIB reports, as concerns mount over prospect of a no-deal departure

British prime minister Boris Johnson. Photo: PA Wire
British prime minister Boris Johnson. Photo: PA Wire

David Chance

A fall in orders from the UK as a result of Brexit uncertainty is exacerbating a decline in factory orders here and has pushed the manufacturing section of the purchasing managers' index to its sharpest decline since 2013, according to a report from AIB.

The seasonally adjusted PMI, which gives an early look at the state of the economy, showed that manufacturing business confidence fell for the second consecutive month to 48.7 in July, down from 49.8 in June, and its lowest reading since April 2013.

The survey showed that anecdotal evidence indicated demand had fallen in both domestic and foreign markets, with new orders dropping markedly, amid reports of Brexit uncertainty hurting customer demand.

"Volumes of new work from abroad also fell in July. The rate of contraction was steep and the fastest for almost a decade. Panellists stated that they had seen a fall in UK orders as a result of ongoing Brexit uncertainty," the survey reported.

The report came as a hard Brexit became a more likely outcome with the rise to power of British prime minister Boris Johnson.

He has said he will not hold talks unless the backstop is removed from the withdrawal agreement, something the EU has said it will not do.

"The details of the report indicate that the weakness was quite broad-based across the various components of the survey. The output index declined for the second time in the past three months, with the pace of contraction the fastest in over six years," said AIB economist Oliver Mangan.

Despite the decline in orders, the manufacturing sector continued to hire workers, although the pace slowed from June, AIB said.

Sterling has crashed dramatically over the past week as markets have started to price in a 'no-deal', and the Central Bank of Ireland warned yesterday that a cliff-edge Brexit with no transition period would cause economic growth here to crash to zero next year, and put at risk 34,000 jobs in the first year.

The Central Bank said in its report that the Government should consider aid to some of the industries and regions that would be hit hard by Brexit, echoing a call from employers group Ibec, which has called for the State to put emergency funding in place.

The three-year period since the Brexit referendum has seen the pound fall, hitting car sales and consumer confidence, despite rising wages.

Data released yesterday showed consumer confidence recovered a little in July to a reading of minus 11 from minus 13, but it remains well below its long-run average of minus nine, and there is a risk it will head south again as uncertainty over an exit deal rises.

Ireland delivers around 12pc of its exports to the UK and although its importance has diminished, it is still a major market for agriculture, food, and for small and medium-sized firms.

In addition, tourism numbers from the UK have fallen off and there is a concern that the drop in the value of the pound will hit people's ability to travel.

IHS Markit, which provides the PMI data for AIB's report, said earlier that the eurozone manufacturing PMI hit a 75-month low in June, a reading that is in line with that seen here.

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