The latest British Chambers of Commerce Quarterly Economic Survey reveals that UK manufacturing is continuing the decline that was seen in the first quarter of 2015.
It has found that "virtually all the key national manufacturing balances recorded" decline in Q2. Meanwhile, the service sector results "remain broadly positive and signal growth".
Also this week, ONS figures showed that manufacturing output was down -0.6% in May on the previous month.
The British Chambers of Commerce (BCC) survey is based on almost 7,500 responses from firms, employing around 800,000 people. The key findings from the Q2 2015 survey are:
- In services, the domestic and export balances recorded mixed movements in Q2, but the overall growth level for sales and orders remained broadly static;
- However, the service sector balances for employment, investment, confidence and cashflow increased slightly between Q1 & Q2 2015;
- In contrast, all the key manufacturing balances fell in Q2 2015 and most balances are now lower than their average 2007 pre-recession levels.
John Longworth, BCC director general, described the slowdown in manufacturing as "a surprise and a concern".
He said: "These figures give us the best, most current insight into business experience and sentiment. Overall, they indicate that we will see continued growth in the economy, thanks mainly to the strength of the services sector. But the difference in results also raises the prospect of the UK experiencing two-tier growth - with modest expansion in services and markedly slower growth in manufacturing and goods."
According to Longworth, there are several possible reasons for the slump. "Part of the reason might be down to the strength of sterling against the euro and the dollar. But currency fluctuations are not the only issues at stake," he said.
He also cited lack of capital and under-investment in infrastructure as key challenges. Longworth said: "If we are to secure long-term, sustainable, diversified growth, the government must tackle these structural problems, which act as a brake on our economy."
David Kern, BCC chief economist, added: "It is clear that the UK recovery remains unbalanced and growth is still too reliant on consumer spending. Much greater efforts are needed to increase the economic contributions of investment and exports - which, in turn, will boost our productivity and help tackle the unsustainable external deficit."