(Bloomberg) --
The U.K.'s manufacturing slump unexpectedly deepened in August as mounting Brexit uncertainty and weaker global growth pushed a gauge of the sector to its lowest level in seven years.
The continued contraction was driven by a drop in new orders, while optimism among firms fell to a record low, IHS Markit said Monday. Meanwhile, exports were hurt by trade tensions and a global slowdown, although Markit also noted that that some European Union-based companies were starting to route supply chains away from the U.K. due to Brexit.
The survey highlights the impact the departure from the EU, and the risk of leaving without a transition, is having on the U.K. economy. The data was collected between Aug. 12 and Aug. 27, ending the day before Prime Minister Boris Johnson's decision to suspend parliament next month.
Key Insights
- Markit's index fell to 47.4 last month, from 48 in July. The median estimate of economists in a Bloomberg survey was for a small improvement
- The PMI reading suggests the sector is contracting at a quarterly pace of close to 2%, said Rob Dawson, director at IHS Markit
- The worse-than-expected reading came despite further weakness in the pound in August, which would normally benefit exporters. Still, the exchange rate was cited by 80% of companies providing a reason for higher purchase prices
- Manufacturing employment fell, while the drop in business optimism was linked to “weakening market conditions, signs of a global economic slowdown, Brexit uncertainty and subdued client confidence,” Markit said
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- Reports last week showed confidence among consumers and businesses fell in August amid growing concerns over a no-deal Brexit
- Markit is due to publish similar indexes for the U.K.'s construction and dominant services sector later this week
--With assistance from Mark Evans and Harumi Ichikura.
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint
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