August figures dragged down by fall in exports and optimism for year ahead at 22-month low

This article is more than 2 years old

This article is more than 2 years old

Britain’s manufacturers face a difficult autumn as the Brexit deadline looms and Donald Trump’s trade sanctions hit exports, according to figures for the sector in August.

A survey of manufacturers has found that growth slowed last month to its lowest level since July 2016, dragged down by a shock fall in exports.

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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.

The Liberal Democrat leader and former business secretary Vince Cable said on Monday he agreed that Brexit was to blame for a loss of momentum that has resulted in Britain slipping down the international league table of manufacturing powerhouses.

“It should be a good time for UK manufacturing, particularly with a weaker pound. The fact it isn’t speaks volumes about the uncertainty being created by the Conservative government’s incompetent handling of Brexit.”

The IHS Markit/Cips purchasing managers index (PMI), which measures activity across the industry, dropped from 53.8 in July to 52.8, the lowest since the referendum vote to leave the European Union, which rocked consumer and business confidence in the months afterwards.

Manufacturers’ optimism about the outlook for the year ahead receded to a 22-month low and the demand for workers weakened. Meanwhile, the PMI export balance fell into negative territory – from 53.0 to 47.4 – which matched the lowest since October 2014. A figure above 50 indicates expansion.



Analysts said the industry’s situation was likely to worsen over the coming months as Brexit uncertainty and the tit-for-tat trade sanctions triggered by the US president’s steel tariffs began to bite further.



Andrew Wishart, an economist at the consultancy Capital Economics, said there was little sign of a recovery in the manufacturing sector.

“The main reason for the fall in the headline orders was a contraction in export orders, suggesting that the possibility of a no-deal exit from the EU in March and a moderation in global growth is starting to weigh more heavily on the sector,” he said.

“Overall, while the survey doesn’t suggest that manufacturing will continue to contract in the thirs quarter, there is little sign of a strong rebound.”

George Buckley, the chief UK economist at Nomura, said the latest decline was part of a trend going back 10 months to last November when the PMI stood at 58.

“There are likely a number of causes for the sharp decline in export orders. First, the slowdown in the global economy over the past year amid concerns about protectionism, higher oil prices, financial strains in China, rising European populism and the risks of a broader emerging market crisis.

“Second, there’s Brexit – there remains much uncertainty about the final outcome of the Brexit talks – not only whether the EU will accept the government’s plans, which looks unlikely in their current form after comments from EU officials over the past week, but also whether those plans will be acceptable to UK politicians (again, passing a vote in parliament is set to be a struggle, given comments from the pro-Brexit lobby over the weekend),” he said.

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Rob Dobson, a director at the survey compiler IHS Markit, warned that output and new orders had slowed and the pace of job creation slumped to near-stagnation.

“Based on its historical relationship with official data, the latest PMI report is broadly consistent with zero growth in manufacturing production, meaning the sector will likely fail to provide any support to the wider UK economy in the third quarter.

“Although slower growth of domestic demand contributed to manufacturing’s weak performance, the main constraint was the trend in new export business. Foreign demand declined for the first time since April 2016, despite the weakness of sterling, amid reports of slower global economic growth and the increasingly uncertain trading environment. Inflows of new work from both domestic and overseas sources will need to strengthen if manufacturing is to show renewed vigour in the coming months,” he said.