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Manufacturing output slips to a seven year low as firms brace for Brexit and global demand cools

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Mike ThorntonMike ThorntonManufacturing output in the UK has fallen at the fastest rate in seven years as the risk of a no-deal Brexit looms and global demand declines.

Business optimism dropped to a series-record low, according to the UK Manufacturing PMI from IHS Markit and the Chartered Institute of Procurement and Supply.

At 47.4 in August, down from 48.0 in July, the headline seasonally adjusted Index fell to its lowest level since July 2012. Anything below 50.0 indicates declining economic output.

Steep reductions in new orders were registered across the consumer, intermediate and investment goods industries, contributing to the ongoing downturns in output in all three product categories.

Where a decrease in new orders was reported, this was linked to weaker domestic and global economic conditions, low market confidence, Brexit concerns, business uncertainty and a slowdown in client spending.

The survey also found EU-based companies were switching to non-UK suppliers to avoid potential Brexit disruption.

Rob Dobson, a director at IHS Markit, said: “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."

Responding to the survey results, Mike Thornton, head of manufacturing at Swindon-based audit, tax and consulting firm RSM, said: "As the government launches its ‘Get ready for Brexit’ campaign, in what looks set to be a pivotal week in UK politics, the latest PMI index reinforces the need for manufacturers to prepare for every eventuality.

"First, manufacturers need to anticipate and prepare for any short-term disruption Brexit could have to trade, resource, the supply chain and cashflow.

"Second, understand what tariffs might apply to all aspects of production and map out your import and export relationship, considering rules of origin and the impact on your wider supply chain.

"And finally, monitor currency rates which could have a significant impact on your pricing strategy in the short to medium term.

"This prolonged state of uncertainty is stalling investment, so the slowdown in orders is not surprising.

"However, disengaging from Brexit at this point will negatively impact business resilience and some hard short-term decisions may need to be taken in the interests of long term sustainability."

Seamus Nevin, the chief economist at Make UK, the British manufacturers’ lobby group, said: “This is not a good time for our economy to be preparing to go it alone."

And Steve Turner, assistant general secretary for manufacturing at factory workers' union Unite, called for Boris Johnson to take no-deal Brexit off the table.