This article is more than 1 year old

This article is more than 1 year old

UK manufacturers have recorded the sharpest drop in factory output for seven years as mounting concerns over a no-deal Brexit and the slowing global economy hit orders across the country.

The monthly snapshot from IHS Markit and the Chartered Institute of Procurement and Supply, which is closely watched by the Treasury for early warning signals from the UK economy, showed that activity fell in August to the lowest levels since July 2012.

The report found that EU-based customers were shunning British manufacturers and rerouting supply chains away from the UK as the likelihood of border disruption after 31 October increased.

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Orders from the US and Asia have fallen as the world economy slows, in a sign of the tough challenge facing the UK to strike new trade deals outside the economic bloc.

The IHS Markit/Cips manufacturing purchasing managers’ index (PMI) fell to 47.4 in August, down from 48.0 a month earlier. Anything above 50 separates growth from contraction.

Rob Dobson, a director at IHS Markit, said: “The current high degree of market uncertainty, both at home and abroad, and currency volatility will need to reduce significantly if UK manufacturing is to make any positive strides towards recovery in the coming months.”

The warning signs from the manufacturing sector come as Britain descends further into political turmoil, as opponents of a no-deal Brexit attempt to stop Boris Johnson from taking the UK out of the EU without an agreement with Brussels in order to prevent lasting economic damage.

Mirroring manufacturers’ contingency plans from around the time of the initial 29 March Brexit deadline, companies have stepped up plans to avoid disruption after Halloween. IHS Markit/Cips said firms had restarted plans to stockpile goods. In another signal of firms’ preparations, the Japanese carmaker Toyota has drawn up a plan to halt production at its factory in Burnaston, Derbyshire, in anticipation of disruption to deliveries of parts.

Fears over manufacturing jobs have started to rise as Brexit drags down the UK economy and global growth slows. Manufacturing employment fell at one of the fastest rates in six and a half years in August, with job cuts driven by cost-saving plans, slower economic growth and the continued impact of Brexit uncertainty.

Labour and the unions warned that further job losses could come as a consequence of a no-deal departure.

Neil Foster, a research and policy officer at the GMB trade union, said: “Crashing out of the EU without a deal would cause mayhem, delays and increase costs for our importers, exporters and their supply chains. The government should be working to rebuild confidence, instead ministers are risking more and more decent manufacturing jobs with their reckless approach.”

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According to the latest snapshot from IHS Markit/Cips, there were steep reductions in new orders across several industries against a backdrop of heightened political chaos and falling export demand across the world.

Global manufacturing has fallen into recession in recent months as the US-China trade war between the world’s two biggest economies intensifies, which has dented economic growth in several major industrialised nations.

The UK has fallen to the bottom of the G7 growth league table, while growth in Germany has gone into reverse and Italy stalled over the second quarter.

Separate figures from IHS Markit on Monday showed that manufacturing activity in the eurozone contracted for a seventh month in a row in August as weak demand for goods continued.