UK factory activity falls ‘at fastest pace for three years’

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Activity among UK manufacturers contracted at its fastest pace for three years in July, according to a closely watched survey.

The Markit/CIPS manufacturing purchasing managers’ index, the first to have full data since the UK’s vote to leave the EU, showed a fall to 48.2, the lowest since February 2013.

The survey adds to concerns that the vote prompted a sharp fall in activity.

A reading above 50 indicates expansion, but below 50 indicates contraction.

The decline was sharper than an initial reading of 49.1 indicated late last month.

The Markit/CIPS manufacturing index is based on a survey of 600 industrial companies and reflects data on orders, output, employment, suppliers’ delivery times and companies’ inventories.

Rob Dobson, senior economist at Markit, said the survey came “amid increasingly widespread reports that business activity has been adversely affected by the EU referendum”.

He added: “The downturn was felt across industry, with output scaled back across firms of all sizes and across the consumer, intermediate and investment goods sectors, although exporters did report a boost from the weaker pound.”

‘Little consolation’

Figures released last week showed the UK economy grew by 0.6% in the three months to the end of June.

However, by far the strongest growth was in April, followed by a sharp easing off in May and June.

Commenting on the Markit data, Martin Beck, senior economic adviser to the EY Item Club, said: “There was little consolation from the detail of July’s survey. Output contracted across the consumer, intermediate and investment goods sectors.

“Employment in manufacturing declined for the seventh month in succession and input-price inflation rose to a five-year high off the back of sterling’s weakness and higher commodity prices.

“The one bright spot was a rise in export orders, no doubt helped by the decline in the pound.”

In another survey published on Monday, the Institute of Chartered Accountants in England and Wales (ICAEW) said business confidence had fallen in the wake of the referendum.

Its business confidence index had been at minus 0.7 in the month running up to the vote, but dropped to minus 27.7 in the period from 24 June to 20 July.

The latest economic data comes as the Bank of England’s Monetary Policy Committee (MPC) prepares to issue its latest interest rate-setting decision on Thursday.

The MPC had been widely expected to cut interest rates last month, but unexpectedly left them unchanged.

This time, rates are likely to fall from 0.5% to a new low of 0.25%, analysts predict.

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