UK manufacturing output slumps to two-year low amid Brexit fears and global trade tensions

European customers are increasingly turning away from Britain as a source of components due to fears of supply chain disruption due to Brexit

Caitlin Morrison
Thursday 01 November 2018 11:49 GMT
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British manufacturing output fell to its lowest level in more than two years last month, missing expectations as Brexit uncertainty and global trade tensions took a toll.

The latest manufacturing purchasing managers’ index (PMI) from Markit/CIPS – where a figure above 50 indicates growth – showed a reading of 51.1 for October, down from 53.6 in September, and well below forecasts of 53.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Manufacturers are at the sharp end of the slowdown in global trade and the increasing reluctance of European customers to source components for Britain, given the risk that supply chains might fail in the event of a no-deal Brexit.”

Rob Dobson, director at IHS Markit, which compiled the survey, said: “October saw a worrying turnaround in the performance of the UK manufacturing sector. At current levels, the survey indicates that factory output could contract in the fourth quarter, dropping by 0.2 per cent.

“New orders and employment both fell for the first time since the Brexit vote as domestic and overseas demand were hit by a combination of Brexit uncertainties, rising global trade tensions and especially weak demand for autos.”

The new orders balance fell to 49.7 in October, down from 52.8 in September and the first sub-50 reading since just after the EU referendum.

“Sharper falls in output, therefore, lie ahead,” Mr Tombs said. “Fearing a protracted period of weakness, manufacturers also reduced headcounts, marginally, for the first time since the Brexit vote.

“The silver lining is that the pressure on the government to make all of the compromises required to obtain a withdrawal agreement and to opt for a soft Brexit will only grow as the pain from Brexit spills over from corporates to consumers.”

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He added that the Bank of England could respond to slow growth by holding interest rates steady until a Brexit deal has been agreed.

Sterling fell back from earlier strong gains after the manufacturing data was published.

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