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UK manufacturers 'suffocating' after biggest fall in production in seven years

Tom Belger
·Finance and policy reporter
A view of the Vauxhall Astra production line at the Vauxhall Motors factory in Ellesmere Port, Cheshire.
Vauxhall's Ellesmere Port plant in north-west England could be threatened by a no-deal Brexit. Photo: PA

UK manufacturers are “suffocating” from Brexit and weak global demand, as figures suggest firms suffered the steepest drop in production in seven years in July.

New orders dried up and clients began to move supply chains away from the UK as expectations grow of a chaotic no-deal Brexit that batters British trade with the EU, according to a survey.

A widely watched index on manufacturing performance released on Thursday showed an unchanged reading of 48 for July.

It marked a third consecutive month of contraction. Figures below 50 represent a decline in activity on the purchasing managers’ index, by IHS Markit and the Chartered Institute of Procurement & Supply, while figures above 50 indicate growth. But analysts had predicted a further dip to 47.7.

READ MORE: Boris Johnson government spends £434m to stop Britain running out of medicines in no-deal Brexit

Manufacturers had seen their worst month in more than six years in June, linked partly to an unwinding of the stockpiling many firms carried out ahead of Britain’s previous scheduled exit date of 29 March.

“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,” said Rob Dobson, director of IHS Markit.

The survey suggests employment in the sector fell for a fourth month in a row, dropping at one of the fastest rates in six years.

It comes a day after separate figures revealed the grim state of the UK car industry, which saw car production slide by 20% in the first half of 2019.

Carmakers blamed weak demand abroad, trade tensions, falling diesel sales in Europe and the cost of Brexit uncertainty and preparations, with firms setting aside an estimated £330m in contingency plans for a no-deal Brexit.

The Society of Motor Manufacturers & Traders (SMMT), a lobby group for carmakers, warned the “worst outcome” would be leaving the EU without a deal, with firms heavily reliant on European just-in-time supply chains, consumer markets and protection from non-European rivals.

Carlos Tavares, chief executive of Vauxhall’s owner PSA, also warned this week production of the Astra at its Ellesmere Port plant in north-west England could be moved abroad if Brexit made it unprofitable.

READ MORE: Boris Johnson urged to stop ‘no deal roulette’ to save 1,000 Vauxhall workers’ jobs

PSA Peugeot Citroen Chief Executive Carlos Tavares delivers his speech during the presentation of the company's 2016 full year results, in Paris, Thursday, Feb.23, 2017. French carmaker PSA Group saw its profits jump last year and is giving dividends for the first time since 2011, burnishing its image as it weighs a buyout of General Motors' money-losing European operations. (AP Photo/Christophe Ena)
PSA chief executive Carlos Tavares warned on a UK Vauxhall plant. Photo: AP Photo/Christophe Ena

Some analysts expect figures later this month to show the British economy shrank in the second quarter of the year, which would mark the first contraction since 2012.

The Bank of England also slashed its own growth forecasts in June, prediction GDP would be flat for the second quarter. It will publish fresh estimates later on Thursday.

Meanwhile the UK’s budget watchdog recently warned June’s “particularly weak” survey figures on the health of the economy across several sectors could “raise the risk that the economy may be entering a full-blown recession.”

It has also predicted a no-deal Brexit could prove disastrous and increase significantly the chances of a recession, sending unemployment spiralling upwards.

READ MORE: Firms welcome Johnson’s immigration plans - but the devil’s in the detail

Expectations that Britain will crash out without an agreement have increased since new UK prime minister Boris Johnson took office, with few signs of room for a breakthrough in talks with Brussels to secure a deal that keeps trade flowing freely with the EU.

The government announced a £2.1bn pot for no-deal planning on Wednesday night, including funds to prepare firms, prepare UK borders and boost stockpiling for potential delays and shortages.