UK manufacturing suffers ‘worrying’ change in fortunes

● Latest PMI report highlights impact of Brexit uncertainties and trade tensions

Britain’s manufacturing sector has suffered a “worrying turnaround” in its performance after output fell to its lowest level for more than two years last month.

Figures from the closely watched Markit/cips UK manufacturing purchasing managers’ index (PMI) showed a reading of 51.1 last month, lower than the 53.6 reported for September.

While any figure above 50 denotes growth, economists had been expecting a reading of 53 and output growth was the weakest since July 2016 as Brexit, trade tensions and weak demand for cars conspired to leave factories reeling.

The survey indicated that the decline in manufacturing orders was linked to weaker inflows of new work from overseas and softer growth in domestic demand. The weakness in total new orders was mainly centred on the consumer goods sector.

Foreign demand decreased for the second time in the past three months and some companies reported that Brexit uncertainties had negatively affected inflows of new work from within the EU.

Andy Hall, head of corporate banking, central Scotland, at Barclays, said: “A concerning set of data from the manufacturing sector for October with not only a slowdown in output growth but also new order inflows and employment both down for the first time in over two years.

“Manufacturers are facing a double whammy of a fall in export orders and weak domestic demand, both conspiring to restrict performance. The only little ray of sunshine is that UK manufacturers remain positive for now with almost half expecting output to be higher in a year’s time but for that confidence to translate into stronger performance, it’s crucial that the sector gets clarity now on a Brexit transition deal.”

Rob Dobson, director at IHS Markit, which compiles 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.”

A similar PMI snapshot for the much larger services sector has still to be published.

The lacklustre manufacturing performance is also filtering through to the labour market, with employment levels in the sector declining for the first time since July 2016.

Staffing levels rose at SMES, but fell for the third straight month at large-sized companies, the survey showed.

Job losses were directly linked to the decline in new work received, staff reorganisations, redundancies and efforts to control costs.

Sterling gave up some gains made earlier in the session.