Factory output in Britain has fallen at the fastest rate in seven years as the risks posed to the economy by a no-deal Brexit rise and as global demand falters.
According to the monthly snapshot from IHS Markit and the Chartered Institute of Procurement and Supply, UK manufacturers scaled back production because of fading demand at home and abroad.
Output and new orders shrank as factories came under pressure from the high level of uncertainty over Britain’s future trading relationship with the EU and from the US-China trade war, which has caused a sharp slowdown in international trade.
New orders fell as businesses used up materials stockpiled in the run-up to the original 29 March Brexit deadline rather than place new orders. Alongside a drop-off in global demand because of the trade war, the survey also found EU-based companies were switching to non-UK suppliers to avoid potential Brexit disruption.
Rob Dobson, a director at IHS Markit, which compiles the survey, said: “July saw the UK manufacturing sector suffocating under the choke-hold of slower global economic growth, political uncertainty and the unwinding of earlier Brexit stockpiling activity.
“Production volumes fell at the fastest pace in seven years as clients delayed, cancelled or rerouted orders away from the UK.”
The IHS Markit/Cips manufacturing purchasing managers’ index (PMI), closely watched by the Treasury for early warning signs from the economy, remained at 48.0 in July, the same level as recorded in June. City economists polled by Reuters had forecast a reading of 47.7 on a scale where anything below 50.0 indicates declining economic output.
Stockpiling activity earlier this year drove up UK factory output in a boon for the British economy, as companies braced for potential disruption at UK borders and ports connected to Brexit.
Many companies now either have adequate stockpiles or may run down their supplies rather than placing new orders, causing a sharp decline in demand for manufacturers.
The downturn in Britain arrives as factory output also slides in other countries, as the trade standoff between Washington and Beijing serves as a brake on demand. Output in the eurozone has also fallen sharply, with the steepest decline in factory activity in the single-currency bloc since 2012.
However, economists warned that Brexit would provide a double whammy for British manufacturers as they suffer from a simultaneous slump in international demand and disruption from leaving the EU.
Seamus Nevin, the chief economist at Make UK, the British manufacturers’ lobby group, said: “This is not a good time for our economy to be preparing to go it alone.
“The downturn experienced by the UK’s main trading partners, and slower world economic growth, combined with foreign customers routing supply chains away from the UK in advance of Brexit has hit British business hard in recent months.”
The IHS Markit/Cips PMI report, which surveys 600 manufacturers about their output levels, found the downturn in the sector hit employment in July. Employment fell for the fourth month in a row, with reports of companies not replacing the staff leaving their firms, recruitment freezes and cost-control initiatives leading to job cuts.
Duncan Brock of Cips, said the reduction marked one of the sharpest cuts to jobs in the sector for more than six years. “Businesses hesitated to keep calm and carry on,” he said.
Unite, the UK’s largest union representing manufacturing workers, warned there was a growing risk of a “manufacturing meltdown” and called for Boris Johnson to take no-deal Brexit off the table in response.
Steve Turner, Unite’s assistant general secretary for manufacturing, said: “Uncertainty over the jobs of thousands of skilled, well-paid manufacturing jobs hang in the balance, from Vauxhall’s Ellesmere Port plant to British Steel.
“It’s time Boris Johnson woke up to the reality of the manufacturing emergency facing communities across the UK.”
