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UK manufacturing hits seven-year low on Brexit and global slowdown fears

Tom Belger
Finance and policy reporter
British Steel collapsed into administration before being bought by a Turkish army pension fund. Photo: PA

UK manufacturers recorded their worst month in seven years in August, as “immensely feeble” figures showed activity shrank for a fourth month in a row.

A widely watched index on manufacturing performance across Britain showed a reading of 47.4 for August, down from 48 in July and its lowest since mid-2012.

New orders plunged at the fastest rate in more than seven years, while business confidence fell to a record low in a sector-wide survey. Reported employment levels also dropped sharply.

“Ongoing global trade tensions, slower world economic growth and Brexit uncertainty were all mentioned by manufacturers as factors contributing to reduced overseas demand,” according to the latest manufacturing purchasing managers’ index.

READ MORE: UK manufacturing suffers worst drop in seven years in July

“There were reports that some EU-based clients were routing supply chains away from the UK due to Brexit,” it added.

Figures below 50 on the index, by IHS Markit and the Chartered Institute of Procurement & Supply (CIPS), indicate a decline in trading conditions. Readings above 50 indicate growth.

The index showed companies scaling back production in response to a steep drop in new orders in several industries. Business optimism fell to its lowest level since the survey began asking managers about their future expectations in 2012.

Duncan Brock, group director at the CIPS, said there was “creeping dread” in the sector over a no-deal Brexit, with fears over port delays, problems for suppliers and the weakening pound.

He said firms were shedding jobs and raising prices to deal with sterling’s decline.

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“As some clients from the Eurozone continued to move their supply chains away from the UK, declining orders from the US and Asia dashed any hopes of redemption, resulting in the sharpest fall in business optimism since at least 2012,” said Brock.

Seamus Nevin, chief economist at manufacturers’ organisation Make UK, said continued uncertainty over post-Brexit terms of trade meant British firms were not showing the same signs of recovery as their French and German counterparts.

“The unprecedented economic and political uncertainty in the UK, as fears of a crash out Brexit grow, is continuing to seriously undermine the performance of UK manufacturing,” he said.

Naeem Aslam, chief market analyst at ThinkMarkets, said: “There is nothing surprising about the UK's manufacturing PMI data, which was immensely feeble. In the midst of Brexit chaos, it was highly expected that this number is going to trend lower.”