British manufacturers are pulling back sharply on investment plans due to mounting uncertainty over Brexit and growing fears of a global trade war, a report has warned.

Just one-third of companies said they planned to increase their investment in plant and machinery – a record low in the fifth annual survey carried out by the EEF manufacturers’ body and Santander Bank. Investment by small companies was particularly squeezed, with three-quarters saying they were having to mothball spending plans in the coming two years.

“These figures put into sharp focus the widening gap between the investment manufacturers know they need to make … and the hurdles they face in getting those decisions over the line,” said the EEF’s chief economist, Lee Hopley. The EEF said its members had “sharply applied the brakes” to investment plans.

Britain’s manufacturers are already gearing up for a difficult autumn as the Brexit deadline looms and the US and China exchange tit-for-tat trade tariffs.

The findings of the annual EEF/Santander Investment Monitor, based on interviews with 232 companies in August, showed rising fears of the impact of global trade tensions. Brexit was found to be a more significant factor holding back investment than a year ago, with new data revealing that hi-tech machinery and building upgrades are most at risk of financial cutbacks.

Just over half of companies (51%) said their investment in plant and machinery had been put on hold because of Brexit negotiations while more than a third (36%) had shelved plans for new or improved buildings. Spending on research and development programmes and IT systems was also being pared back.

According to official figures released last Friday, UK companies across the wider economy cut their investments in Britain in the second quarter of 2018, marking the fourth consecutive quarter of weak spending by firms. The Office for National Statistics said spending on projects and assets including transport equipment, machinery, buildings and intellectual property fell by 0.7% over the three months to the end of June to £47.5bn.

The EEF report confirms forecasts in earlier surveys that manufacturers can no longer absorb the costs of Brexit. In July, a snapshot of industry from the Confederation of British Industry found that, despite mounting skills shortages and capacity constraints, companies were cutting back on product development and training at a rate not seen since the economy was in recession in 2009.

In August, the EEF warned that Britain’s manufacturing industry, measured in terms of output, has fallen to ninth in the world behind France, reversing a recovery in its performance since the financial crash. The fall in the UK’s international standing was blamed partly on the fall in sterling since the beginning of 2016, which accelerated after the Brexit vote in June of that year.

EEF represents 20,000 companies of all sizes from start-ups to multinationals, across engineering, manufacturing, technology and the wider industrial sector.

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Paul Brooks, the UK head of manufacturing at Santander, said: “It is understandable given the current uncertain political and economic conditions in the UK that manufacturers are being cautious in their key investment decisions. It is important that businesses prioritise investments that will impact positively on their competitiveness, productivity and that widens their market base both inside and outside the EU.”

A recent survey of manufacturers found that growth slowed in August to its lowest level since July 2016, dragged down by a shock fall in exports. The figures indicate that the sector, which suffered a fall in output during the first two quarters of the year, could remain in recession for the rest of 2018. The chancellor, Philip Hammond, has blamed Brexit uncertainty for the recent failure of UK firms to capitalise on a strong expansion in global demand.

A succession of major manufacturing names with a strong UK presence have warned that a disorderly Brexit would cause serious disruption to their operations, including Airbus, BMW and Jaguar Land Rover.

The EEF report coincides with claims that the boss of an unnamed UK-based carmaker had been flown by private jet to meet the French president, Emmanuel Macron, in an attempt to persuade the company to move manufacturing to France after Brexit.