Factories forced to cut staff as overseas orders dry up

BRITAIN’S factories are being forced to cut jobs and investment as demand slumps and overseas orders dry up .

Orders from the US, China, Europe and South America are all in freefall, according to the purchasing managers’ index (PMI), an influential survey of businesses from S&P Global.

As a result, output and activity in manufacturing is falling more sharply than at any point since the first Covid lockdown. Aside from the pandemic, this is the worst performance since the financial crisis.

The UK’s manufacturing PMI score fell to 43 in August, from 45.3 in July. Any score of less than 50 shows activity is falling, so this points to a deepening crunch in the industry.

Among Europe’s major economies, only Germany’s manufacturers are suffering a deeper crunch than Britain’s.

Fhaheen Khan, economist at industry group Make UK, said higher interest rates and sustained inflation have hammered demand.

He said: “Manufacturers are now acting by cutting jobs and investment as the backlog of work starts to dry leading to an inevitable downturn in economic activity soon. Policymakers and rate setters will need to be wary of the cost of higher unemployment given prices remain elevated for many consumers and the loss of incomes will hurt many if we take this too far.”

There is a glimmer of light as manufacturers reported output prices edged down for the third month in a row, raising hopes that consumers will see some relief from the cost of living crisis.

The Bank of England is expected to raise interest rates again this month, from 5.25pc to 5.5pc.

Martin Beck, chief economic adviser to the EY Item Club, said signs of slowing growth and easing inflation will put pressure on officials to hold rates.

He added: “Growing evidence of a weakening economy and disinflationary pressure mean the possibility that the MPC will choose to keep rates unchanged is looking more plausible.”

Germany is deepest in contractionary territory, with its industrial base recording a score of 39.1. Italy’s 45.4, France’s 46.0 and Spain’s 46.5 are also well below 50 and so indicate the manufacturing sectors of all four major eurozone economies are shrinking.