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Manufacturing contracts for first time since March 2013

Published 03/05/2016

The manufacturing sector is being hit by uncertainty caused by the vote on Britain's membership of the EU
The manufacturing sector is being hit by uncertainty caused by the vote on Britain's membership of the EU

Britain's manufacturing sector saw activity contract for the first time in more than three years in the latest sign that the EU referendum is hurting the UK economy, according to a survey.

The closely watched Markit/CIPS UK Manufacturing purchasing managers' index showed a reading of 49.2 in April - the first time the index has fallen below the critical 50 mark since March 2013. A reading below 50 signals falling output.

The report warned over an "atmosphere of deep unease" among the factory supply chain, which saw new orders slump for the fourth month in a row and job losses mount.

The reading, which fell from a downwardly revised 50.7 in March, comes as the sector is being hit by uncertainty caused by the vote on Britain's membership of the EU, which is compounding already tough conditions caused by a global economic slowdown and the recent oil and commodity price rout.

Official figures last week revealed Britain's economic growth slowed to 0.4% in the first quarter from 0.6% in the final three months of 2015, driven in part by a poor performance from the manufacturing industry.

The report showed manufacturing jobs were cut for the fourth straight month, with the rate of decline the fastest since February 2013.

Markit said recent data suggests there have been close to 20,000 job losses in the sector over the past three months.

David Noble, group chief executive at the Chartered Institute of Procurement and Supply (CIPS), said: " Recent fears over a stall in the UK's manufacturing sector have now become a reality and driven the steepest decline in the manufacturing PMI for three years.

"An atmosphere of deep unease is building throughout the manufacturing supply chain, eating away at new orders, reducing British exports and putting more jobs at risk."

He added the manufacturing industry was set for a "nervous few months".

The weakening performance of the manufacturing sector was felt most in the consumer and investment goods sectors as investors increasingly delayed spending until after the EU referendum in June.

A fourth successive month of falling export orders also highlighted the slowdown in the global economy, according to the report.

Howard Archer, economist at IHS Global Insight, said: "This is a worrying and disappointing survey.

"While the UK manufacturing sector has been struggling for some time, the April purchasing managers survey can only fuel concern that mounting uncertainties ahead of June's EU referendum are taking an increasing toll on the economy."

He predicted wider UK growth could slow to 0.3% in the second quarter, but warned: "Even this could prove optimistic."

Shadow chancellor John McDonnell said: "More gloomy news from British manufacturing shows how the toxic Tory cocktail of their Chancellor's economic mismanagement and their backbenchers calling for Brexit is damaging prosperity.

"George Osborne is standing by as our vital steel industry collapses, and now the whole of manufacturing is bearing the brunt.

"We urgently need an end to the wrecking ball policies facing our manufacturing base."

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