U.K. Factories Stuck in Worst Slump in Six Years on Brexit

(Bloomberg) --

U.K. manufacturing shrank for a third month to stay in worst downturn for more than six years as demand continued to fall.

The continued weakness reflects in part unwinding of stockpiling at the start of the year before the original March Brexit date. But it's also due to the “choke-hold of slower global economic growth” and “political uncertainty,” said IHS Markit.

Markit's monthly measure of factory activity stayed at 48 in July, below the 50 level that divides expansion and contraction, it said Thursday. Employment fell and companies reported that some clients were routing supply chains away from Britain because of its imminent departure from the European Union.

Manufacturing figures could remain volatile in coming months, particularly if companies ramp up Brexit preparations again before the Oct. 31 deadline. Prime Minister Boris Johnson has said the U.K. will leave the EU then with or without a deal.

Bank of England policy makers have noted the weakening outlook. The central bank will announce its latest interest-rate decision later on Thursday, along with new growth and inflation forecasts.

Beyond Brexit, a slowing global economy could also hit demand at U.K. factories. But almost half of respondents to the Markit survey said they expect output to be higher in one year's time, compared with less than 10% forecasting contraction.

To contact the reporter on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Brian Swint

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