The pound slid on Monday after British manufacturers suffered the sharpest fall in activity in more than six years last month.
Brexit uncertainty and global trade tensions appear to be damaging industry, while firms have also stopped stockpiling for a no-deal Brexit that never came in March.
The IHS Markit/CIPS manufacturing purchasing managers' index (PMI), a monthly survey on the performance of 600 UK firms, slid from a 49.4 reading in May to 48 in June.
The figure fell below predictions in a recent Reuters poll of economists to the lowest rating since February 2013.
Sterling was down more than 0.4% against the dollar in early trading, though agreement between the US and China to restart trade talks also strengthened the dollar.
Reported employment levels in the sector sunk for the third month in a row despite the current record high in UK employment. The survey’s authors blamed it on “lower workloads, economic slowdown, Brexit uncertainty and hiring freezes.”
The index’s figure for manufacturing output slid even further, in its biggest contraction since October 2012.
A spokesman for UK manufacturers said the figures showed Boris Johnson’s and Jeremy Hunt’s “race to the bottom” to sound tougher promoting a no-deal Brexit was the “height of irresponsibility.”
Seamus Nevin of Make UK suggested the rhetoric of the two candidates to be the next UK prime minister showed “zero understanding” of the consequences.
"The downturn in UK manufacturing deepened during June as the impact of firms unwinding stockpiles built before the original Brexit date continued to reverberate through the sector and exacerbate weak demand," IHS Markit economist Rob Dobson said.
Figures seen by Yahoo Finance UK last week showed British firms had built up £6.6bn in stocks in the run-up to the now-delayed March deadline amid predictions of delays and shortages.
Export demand fell for a third month in a row, as manufacturers suffer from the trade conflict between the United States and China.
Seamus Nevin, chief economist at manufacturers’ trade body Make UK, said: “Today’s data proves that May’s plunge below the 50-threshold was not just a one-off.
“Businesses are cutting back on both day-to-day and capital spending with the contraction in output a reflection of growing Brexit uncertainty and, worsening global trade winds.
“Firms are reporting that export demand is falling month-on-month as customers around the world are losing confidence in the future of the UK market.”
He added that there was “little sign of improvement” to come because of weaknesses in the Eurozone economy.
Nevin added: “Given this outlook, increasing competition to see who can race to the bottom and act tough on ‘no deal’ is the height of irresponsibility with zero understanding of the consequences.”
But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figures showed “light at the end of the tunnel.”
He said there could be a fall in output of between 0.5% and 2% in the second quarter of 2019, but added: “We’re hopeful, however, that manufacturing output will edge up in Q3, given the robust outlook for households' real incomes, recent positive news on the global trade war and the possibility of another stockpiling boost ahead of the October Brexit deadline.”