File photo dated 15/02/17 of a worker inspecting rolls of steel. Manufacturers are stockpiling goods at the fastest rate since records began as they prepare for a hard Brexit and major disruption at ports, with a slowdown in the sector also expected to drag on Britain's economic growth.
Manufacturing employment is falling at one of the fastest rates in the past decade © PA

Stockpiling ahead of the now-postponed October 31 Brexit deadline limited the contraction in UK manufacturing activity at the start of the final quarter of the year, according to a business survey. 

The IHS Markit purchasing managers’ index for manufacturing rose to 49.6 in October from 48.3 in September. Economists polled by Reuters had expected a marginal decline to 48.1. A reading below 50 indicates the majority of businesses reported falling output. 

However, the increase was largely due to companies increasing their stocks as they prepared for the UK’s expected departure from the UK. The PMI sub-index for stock of purchases rose to 55.57 in October, from 53.64 in September. Boris Johnson, the UK prime minister, and Brussels have agreed to postpone the Brexit deadline until January 31. Britain will meanwhile hold a general election on December 12.

“The manufacturing downturn continued at the start of the final quarter as uncertainties surrounding Brexit, the economic outlook and domestic politics all took their toll,” said Rob Dobson, director at IHS Markit.

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“The underlying picture looks even darker than even these disappointing headline numbers suggest, as output and new orders fell despite short term boosts from stockbuilding activity in advance of the October 31 Brexit deadline.”

Incoming new orders decreased for the sixth consecutive month, led by a deterioration in the domestic market. Foreign new orders rose for the first time in seven months, driven by EU clients bringing forward planned purchases before the now delayed Brexit deadline, according to the survey.

“Domestic clients packed up and went home without placing orders, leaving the sector to survive on a handful of stockpiling purchases from clients in the EU,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

Factory activity for investment goods was the worst performing subsector as uncertainty weighed on companies’ investment decisions. At 42.8, the output sub-index for investment goods indicated a steep contraction, while activity for consumer goods producers stagnated at 50.01. 

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The survey also indicated that in October companies cut jobs for the seventh consecutive month and at one of the fastest rates in the past decade. Separate official data showed that in the second quarter the manufacturing sector lost 5,000 jobs compared with the previous quarter.

In addition to Brexit uncertainties, the UK’s manufacturing slump reflects a global industrial downturn, partially driven by the US-China trade war and its impact on investment.

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Industrial production in advanced economies contracted 0.7 per cent in August compared with the same month in 2018, dragged down by a 2.6 per cent fall in the eurozone, according to data from CPB Netherlands bureau for economic policy analysis.

The PMIs give a measure of the health of the economy ahead of official data.

“While the manufacturing PMI recovered in October from September’s extremely weak level, it is still consistent with a recession in the manufacturing sector,” said Ruth Gregory, senior UK economist at Capital Economics, a consultancy. 

UK industrial production dropped 0.4 per cent in the three months to August compared with the previous three months, according to the latest official data from the Office for National Statistics. A 0.4 per cent rise in the dominant services sector — which accounts for about 80 per cent of the economy — drove an overall gross domestic product expansion of 0.3 per cent over the previous three months. 

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