UK manufacturing gauge drops to lowest since July 2016

British manufacturing suffered its sharpest slowdown for two years in October, according to a key gauge of sentiment in the sector, as fears of a no deal Brexit weighed on activity.

The IHS Markit manufacturing purchasing managers’ index fell to 51.1 in October, down from 53.6 in September and far below City economists’ expectations of 53. A reading above 50 indicates growth while anything below points to contraction.

IHS Markit, which compiles the data, said the drop in new business was “partly driven by rising global trade tensions and Brexit uncertainties”.

Many companies are concerned that a disorderly Brexit could leave both imported components and finished goods destined for the EU stranded in traffic jams as border checks return to the critical Dover-Calais shipping route.

The manufacturing sector has also been at the forefront of a slowdown in economic activity across Europe in recent months, as both new EU emissions tests on cars and the US-China trade war have hampered the sector after a strong 2017.

“At current levels, the survey indicates that factory output could contract in the fourth quarter, dropping by 0.2 per cent,” said Rob Dobson, a director at IHS Markit.

“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,” he said.

Bottlenecks caused by new worldwide emissions tests led to a fall of 21 per cent in UK car sales during September and helped contribute to a slowdown in eurozone growth during the third quarter.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that British factories “are at the sharp end of the slowdown in global trade” as they also have to cope with “the risk that supply chains might fail in the event of a no-deal Brexit”.

Thursday’s survey followed a report published by the CBI employers lobby group last month that said new UK manufacturing orders had fallen at their fastest pace for since October 2015 in the third quarter of the year as fears over a disorderly Brexit quashed confidence in the sector.

BMW, the German carmaker, has shifted the timing of annual maintenance of its Mini plant in Oxford to avoid being caught out by a no deal Brexit, while Nissan is delaying pay negotiations at the UK’s largest car factory in Sunderland until after the withdrawal agreement is finalised.