Factory output falls on Brexit

Growth in Irish manufacturing shuddered to a halt last month, in the clearest evidence to date that the drop in sterling following the decision of the UK to quit the EU is adversely affecting the economy here.

The Investec Ireland survey of Irish purchasing managers — the people who have to react first to any signs of worsening order books — posted a reading of 50.2 last month, down from 53 in June.

With any reading below 50 signalling that manufacturing industry is contracting, July’s reading shows that Irish factories were, at best, treading water.

The survey was the weakest reading for 38 months and also showed that new business “stagnated” in the month.

Purchasing managers appear to be bracing themselves for conditions “to get worse before they get better”, according to the report.

For the first time since June 2013, no meaningful rise was recorded in new orders, with some purchasing managers blaming the Brexit vote for the reading.

The output of consumer and investment goods fell, but production of intermediate goods rose.

New orders fell for the second month in three, as managers blamed a fall in new business from overseas, as well as a general slowdown and the Brexit uncertainty for the decline.

“This is a disappointing, but not particularly surprising, report,” said Philip O’Sullivan, chief economist at Investec Ireland.

“While we draw a modicum of reassurance from the relatively modest declines in both new orders and new export orders, our sense is that conditions in the Irish manufacturing sector are likely to get worse before they get better,” he said.

The sharp appreciation of the euro against sterling has, however, led to a sharp fall in the costs of raw materials used by Irish factories in July. Purchases of raw materials fell only for the first time in two and a half years.

A sharp fall in the value of sterling against the euro tends to make it more difficult for Irish exporters, in particular indigenous firms to sell into Britain.

In the UK, the Markit-CIPS Construction Purchasing Managers’ Index fell to its lowest reading since June 2009 and some way below the 50 mark that divides growth from contraction.

Builders’ merchant Travis Perkins said the vote had created “considerable uncertainty” in the outlook for the building supplies market as it abandoned its target of increasing earnings by around a tenth this year.

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