UK Economy

UK manufacturers see pick-up ahead, but EU vote key

LONDON (Reuters) - Embattled British manufacturers expect a slight recovery in the second half of 2016 but that slow improvement could be knocked off course if the country votes to leave the European Union, an industry survey showed on Monday.

A downturn across British factories eased in the April-June period but the pick-up was weaker than companies expected three months ago, industry association EEF said.

Nonetheless, manufacturers remained optimistic about the second half of the year, probably reflecting an assumption that Britain will vote to stay in the EU in a referendum on June 23 and that some other causes of weak demand continue to wane.

“While all of this suggests that manufacturing is coming out of the mire of the past 18 months, even a decent six months in the latter part of the year will still leave output broadly flat over 2016 as a whole,” EEF chief economist Lee Hopley said.

“If, however (there’s) a vote to leave the EU, we can expect a very significant period of political and economic uncertainty which will see the sector facing uncharted waters for some time to come.”

Britain’s manufacturing sector, which accounts for just over a tenth of national economic output, struggled last year in the face of weak global demand and a strengthening of sterling.

The country’s much bigger services sector could rebound sharply in the event of an “In” vote on June 23 after a survey on Friday showed one in three firms reported a detrimental effect of the referendum on business last month.

The EEF said it also detected signs that Brexit uncertainty was weighing on manufacturers, whose investment intentions slipped to their lowest level since the end of 2009, the year of Britain’s last recession, led by small firms.

Reporting by Andy Bruce; editing by Andrew Roche