September 4, 2016 / 11:36 PM / 3 years ago

UK factories cut investment plans after Brexit vote: EEF

LONDON (Reuters) - British manufacturers reined in their investment plans after the Brexit vote in June, according to a survey that showed no immediate big hit due to the referendum but may add to doubts about the long-term health of the economy.

A worker attaches a connector to electrical wire on the factory floor of PP Control and Automation near Cannock, Britain, July 6, 2016. REUTERS/Phil Noble/File Photo GLOBAL BUSINESS WEEK AHEAD PACKAGE - SEARCH "BUSINESS WEEK AHEAD AUG 1" FOR ALL IMAGES - RTSKHR7

Manufacturing output worsened in the three months to August as domestic orders wilted, reversing an improvement earlier this year, industry association EEF and accountancy firm BDO said.

Still, there was no sign of a sudden drop in activity after the vote to leave the European Union and the plunge in the value of the pound boosted export orders, they said, echoing another upbeat survey of manufacturing output last week.

The Bank of England, which has said it expects to cut interest rates again this year, is likely to view the weaker investment plans by manufacturers as consistent with its expectation that Britain’s uncertain future trading ties with the EU will gradually take its toll.

The EEF’s gauge of investment plans for the next 12 months slipped a point to -10, its lowest since late 2009.

“While the referendum outcome appears not to have pushed the sector back into recession, the results do not provide confidence that a return to stronger growth is on the cards this year either,” said EEF chief economist Lee Hopley.

Last month, the Confederation of British Industry said investment plans by services companies - which account for a far larger chunk of the economy than manufacturers - were at their leanest in more than four years.

Despite the uncertainty, the EEF survey of 450 manufacturers showed they mostly expect output and orders to improve, especially for exports. Employment intentions improved slightly.

EEF also pointed to rising price pressures in factories as the weak pound pushed up the cost of imported goods. Recent surveys of the manufacturing and construction sectors also detected inflation signals related to the fall in sterling.

EEF expects Britain’s economic growth to stall in the second half of 2016 and stay weak in 2017. Manufacturing output would rise 0.4 percent this year but contract 0.7 percent next year.

The Markit/CIPS PMI for the services sector, due at 0830 GMT (4.30 a.m. ET), will provide more information on how Britain’s economy has performed over the last month.

Editing by William Schomberg

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