The downturn in the UK manufacturing sector continued at the start of the third quarter, with production and new orders shrinking as manufacturers faced the on-going “headwinds of political uncertainty, a global economic slowdown and the unwinding of stocks built up before the original Brexit date”.

At 48.0 in July (unchanged from June), the headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) stayed below the neutral 50.0 mark for the third month in a row (the last time the PMI was below its current level was February 2013).

The Index shows that manufacturing production fell to the greatest extent in seven years, as companies scaled back their output in response to a further decrease in new order intakes.

Demand was weaker from domestic and overseas markets, with the decline mainly reflecting ‘lower intakes’ from the EU and China.

Manufacturers attributed lower order intakes and production to on-going uncertainties (political, global trade tensions and Brexit) and slower world economic growth.

Companies also noted that some clients were routing supply chains away from the UK in advance of Brexit.

July saw little change in the level of input stocks; and while some firms were still “running down holdings bolstered prior to the original Brexit date”, others were starting to stockpile again in preparation for the new 31 October deadline.

Stocks of finished goods continued to rise in July, albeit to a lesser extent than earlier in the year. Price pressures eased at UK manufacturers, with the rates of increase in both input costs and selling prices the weakest for over three years.

Moreover, manufacturers maintained a positive outlook in July, with over 46% expecting output to be higher in a year’s time (less than 10% were forecasting contraction).

Mike Rigby, manufacturing, transport and logistics director at Barclays Corporate Banking, said: “The fall in the UK manufacturing sector’s PMI reflects a continuation of the gradual downturn in confidence felt by UK businesses.

"This situation is not surprising, considering the macro landscape that manufacturers are attempting to navigate, with Brexit and political uncertainty, overseas firms moving supply chains away from the UK and concerns about future export market prospects.

“It is not all doom and gloom, though. A number of the clients I speak to are starting to make investment decisions, and we are seeing some larger companies make important commitments — such as Jaguar Land Rover’s plan to build electric models in Castle Bromwich and Hitachi’s decision to invest in its UK factory to supply a new train fleet for Abellio.”