Manufacturers’ optimism about their prospects for the rest of the year fell to a 27-year low last month amid record stockpiling to cope with the potential fallout of a no-deal Brexit, according to a survey of the industry.
Worries about the UK leaving the European Union without an agreement also prompted manufacturing firms to cut jobs at the fastest rate since February 2013, the IHS Markit/Cips study found.
The decline across all areas of UK manufacturing mirrored falls across the eurozone, Japan and China that analysts said reflected a global contraction in factory output.
Japan’s output tumbled after a dive in new orders, especially from China, where the government is coping with slowing consumer demand and a manufacturing sector weighed down by large debts.
China’s manufacturing output contracted only marginally but the ripple effect on other regions is likely to be magnified because of its role over the past 20 years as the driving force of global demand for goods, alongside the US.
Manufacturing across the eurozone, which depends heavily on demand from China for industrial machinery as much as it does finished goods such as cars, followed the same pattern. It contracted in February for the first time since June 2013.
The authors of the report said: “Although slight, the [eurozone] contraction signalled in February ended a run of growth in the manufacturing economy that had stretched to over five and a half years.”
Only the US manufacturing industry, which has grown in every month since 2009, continued to expand, though at a much slower pace, reflecting the weaker economic outlook.
The UK manufacturing purchasing managers’ index (PMI), which judges the level of activity in the industry, fell to a four-month low of 52.0 in February, down from a revised reading of 52.6 in January.
While the figure remained above the 50 mark that separates growth from contraction, activity across the industry was only prevented from slipping backwards by businesses hoarding raw materials and working to complete orders before 29 March, when the UK is scheduled to leave the EU.
Rob Dobson, a director at IHS Markit, said the level of optimism across the sector hit a low point not seen since the survey started in 1992.
The survey found that firms increased their stockpiling by the largest amount on record in one month. Almost 70% of the companies offering a reason behind the buildup of stocks attributed it to Brexit.
“With Brexit day looming, UK manufacturers continued to implement plans to mitigate potential disruptions. Stockpiling of both inputs and finished products remained the order of the day, with growth in the former hitting a fresh record high,” Dobson said.
“The current elevated degree of uncertainty is also having knock-on effects for business confidence and employment, with optimism at its lowest ebb in the survey’s history and the rate of job losses accelerating to a six-year high.”
Official data has already shown the manufacturing sector to be in recession and Dobson said the February PMI survey offered little evidence that any short-lived boost to output from stock-building is sufficient to claw back the sector into growth territory.
“Apart from the uncertain outlook, manufacturers also face a darkening backdrop of a domestic market slowdown and weakening inflows of new export business, as global growth decelerates and trade tensions bite. Manufacturing and the broader UK economy therefore face a difficult 2019, with the slowdown being exacerbated later in the year as inventory positions are unwound and Brexit-related headwinds likely to linger,” he said.
The figures follow a steep decline in British car production, which fell for the eighth month in a row in January as vehicles bound for China plunged by more than 70%.
British factories produced 120,649 cars in total during the month, down by 18.2% on January 2018, after the fall in exports to China and a decline in production for European markets, which fell by a fifth.
