Brexit Uncertainty Hits UK Manufacturing

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Brexit Uncertainty Hits UK Manufacturing
Brexit Uncertainty Hits UK Manufacturing

Brexit has weakened Britain’s manufacturing sector as the latest industry health check from data firm Markit showed. New orders and employment declined last month due to Brexit uncertainty and the impact of the US-China trade war. This was the worst performance for Britain’s factory sector since the EU referendum three years ago.

Firms reported that they have slowed their stock-piling, after the latest Brexit extension to the 31 October. While businesses had been stockpiling to meet the original deadline for Brexit at the end of March, order books shrank rapidly. According to economists, Britain’s factories could be heading into a recession now that the possibility of a cliff-edge no-deal Brexit is no longer on the table.

Markit says: “New order inflows deteriorated from both domestic and overseas sources. New export business fell for the second month running and at the quickest pace in over four-and-a- half years. Manufacturers reported lower demand from Asia and Europe. There was also mention of Brexit uncertainty, including clients diverting supply chains away from the UK, leading to lower demand from within the EU.”

This resulted in Markit’s UK manufacturing PMI fall to 49.4, which is the lowest reading since July 2016, when factories were recovering from the Brexit vote. Despite hopeful predictions from the City which forecasted the PMI around 52, unfortunately, the sector contracted in May.

What is the PMI?

The purchasing managers’ index (PMI) is a closely watched survey that shows the health of the manufacturing sector, which was 53.1 points a month earlier. The IHS Markit /CIPS UK Manufacturing PMI is compiled by IHS Markit from results gathered from questionnaires sent to purchasing managers in a panel of around 600 manufacturers.

What were the UK survey’s findings?

The decline was something experienced by both manufacturers in the UK and the Eurozone, who suffered a considerable decline, with the purchasing managers’ index falling from 47.9 in April to 47.7 in May.

The UK survey found that the Brexit delay was followed by a decrease in domestic and overseas orders. Brexit uncertainty caused companies to move supply chains away from the UK, while limited production meant a second month of job losses. Despite the contraction, manufacturers remain positive and believe that a Brexit deal will be in place, with 49% expecting a higher output in a year.

Rob Dobson, a director at IHS Markit, said: “The UK manufacturing sector was buffeted by ongoing Brexit uncertainty again in May. The trend in output weakened and, based on its relationship with official ONS data, is pointing to a renewed downturn of production.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Concern for manufacturers has deepened this month as the sector’s performance shrank in May and tumbled into contraction. With one of the fastest shrinking rates seen in six and a half years and the biggest drop since July 2016, straight after the referendum result, based on this result, there is the likelihood of more bad news to come.”

Manufacturing Organisation Make UK’s Warning

Before the disappointing data from Markit, Make UK, the UK’s leading manufacturing organisation, had already warned that a no-deal Brexit will be damaging to the economy, reporting weak investment.

The manufacturing organisation said that the UK leaving the EU without a deal will be “economic lunacy.” From Boris Johnson, and Andrea Leadsom, to Dominic Raab and Sajid Javid, all these candidates to replace Theresa May as the Tory leader, have agreed to press for a Brexit on 31 October, whether or not there was a deal.

Chief executive of Make UK, Stephen Phipson explained that the manufacturing sector was on a “weakening trend.” He added: “Earlier this year there was clear evidence that industry was on steroids as companies stockpiled. Underneath, however, there is now growing evidence of European companies abandoning UK supply chains, while Asian customers balk at the unknown of what may exist as the UK leaves trade agreements which operate under EU rules.”

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