'Suffocating' UK factories report biggest fall in output in seven years

LONDON: British manufacturers’ output fell by the most in seven years last month as Brexit worries and weaker global demand choked off growth, a closely watched business survey showed on Thursday.

Hours before the Bank of England is due to update its economic outlook, the monthly purchasing managers’ index (PMI) added to signs that the economy is at risk of slipping into recession as businesses battle falling demand from Europe and China and the risk of a disruptive no-deal Brexit.

July’s IHS Markit/CIPS manufacturing PMI remained at the six-and-a-half-year low of 48.0 it struck in June, a shade better than the median forecast of a fall to 47.7 in a Reuters poll of economists.

But the survey’s output component fell further below the 50-mark that separates growth from contraction to 47.0, its lowest since July 2012 when the euro zone was in the throes of a debt crisis.

“July saw the UK manufacturing sector suffocating under the choke-hold of slower global economic growth, political uncertainty and the unwinding of earlier Brexit stockpiling activity,” IHS Markit economist Rob Dobson said.

New Prime Minister Boris Johnson has promised to take Britain out of the European Union on Oct. 31, regardless of whether he can secure a revised transition deal with the bloc, pushing sterling to its weakest since November 2016 against a basket of currencies GBPTWI=BOEL.

Businesses fear a no-deal Brexit would lead to major disruption at ports following the reimposition of tariffs and customs checks, and IHS Markit said foreign customers were already reducing their reliance on British firms.

“Clients delayed, cancelled or re-routed orders away from the UK, leading to a further decline in new work intakes from both domestic and overseas markets,” Dobson said.

Britain’s car industry said on Wednesday that investment fell by more than 70% in the first half of 2019 due to Brexit worries. The Confederation of British Industry said small manufacturers were the gloomiest since the 2016 Brexit referendum.

Brexit has compounded broader problems affecting Europe’s manufacturing industry, which has suffered from reduced Chinese demand as a by-product of U.S. tariffs on imports from China.

A euro zone flash manufacturing PMI for July fell to its lowest since 2012 and growth in the currency bloc sank to 0.2% in the second quarter from 0.4% at the start of the year.

The Bank of England predicts British economic growth will sink to zero in the second quarter from 0.5% in the first three months of 2019, when growth got a boost as businesses rushed to stockpile goods before the original Brexit date of March 29.

July’s survey showed manufacturers’ stock levels were fairly stable as some businesses continued to run them down while others started to build up again ahead of the new Oct. 31 deadline.

Businesses also reported the weaker pound was pushing up the cost of some imports, though overall raw material costs rose at the slowest rate in three years, as did the prices manufacturers sold their goods at.