The index sat at 47.4 in August, down from 48.0 in July. A reading of 50 or above indicates growth. A decline in new work orders fell to the greatest extent in 85 months, linked to weaker domestic and global economic conditions, low market confidence, Brexit concerns, business uncertainty and a slowdown in client spending.

In addition, the level of new export business contracted at the fastest rate in over seven years, again fuelled by wider global economic pressures. Additionally, there were reports that some EU-based companies were routing supply chains away from the UK due to Brexit. Inflows of work from the USA and Asia also slowed.

Business optimism slowed to its lowest level since a question tracking future expectations was added in July 2012. However, manufacturers still expect to see some output growth in the coming 12 months, with 40% of companies forecasting expansion, compared to 13% predicting a decline.

Manufacturing employment fell at one of the fastest rates over the past six-and-a-half years in August. Job cuts were driven by cost-saving initiatives (including reorganisations and redundancies), slower economic growth and the continued impact of Brexit uncertainty. Stocks of finished goods moved mildly higher, while input inventories edged lower. These trends reflected an interplay between companies reducing safety stocks built around the original Brexit date and those gearing up for a departure at the end of October.

Input price inflation remained solid in August. Of the companies providing a reason for increased purchase prices, over 80% made at least some reference to the exchange rate. Manufacturers passed part of the increase in costs on to clients, leading to a further rise in average selling prices. The strongest rates of increase signalled by both price measures were seen in the intermediate goods sector.

“Based on its historical relationship against official ONS data, the latest PMI Output Index is consistent with a quarterly pace of contraction close to 2%,” warned Rob Dobson, director at IHS Markit, which compiles the survey. “The outlook also weakened as the multiple headwinds buffeting the sector saw business optimism slump to a series-record low. The current high degree of market uncertainty, both at home and abroad, and currency volatility will need to reduce significantly if UK manufacturing is to make any positive strides towards recovery in the coming months.”

Further PMI comment:

Duncan Brock, group director at the Chartered Institute of Procurement & Supply: “The sector’s illness took a turn for the worse in August with the sharpest decline in domestic and export orders for seven years. Investment continued to peter out and heightened concerns about the UK’s political situation and the strength of the global economy acted as a drag on activity. As some clients from the Eurozone continued to move their supply chains away from the UK, declining orders from the US and Asia dashed any hopes of redemption, resulting in the sharpest fall in business optimism since at least 2012. Soured by the continuing intensely difficult conditions, the sector resorted to some job shedding and increased their own prices as a last-ditch effort against renewed pressure from a weakening pound. As Brexit planning intensifies, some firms were resorting to more inventory building whilst others were unravelling their stocks. With some supplies impacted by port delays and poor supplier performance, a creeping dread is descending on the sector that there will be more of these obstacles to come.”

Neil Foster, GMB Research and Policy Officer: “These latest dismal figures show that manufacturing industries have no confidence in the Government’s Brexit strategy. Crashing out of the EU without a deal would cause mayhem, delays and increase costs for our importers, exporters and their supply chains. The Government should be working to rebuild confidence instead ministers are risking more and more decent manufacturing jobs with their reckless approach.”

Mike Thornton, head of manufacturing at RSM: "As the government launches its ‘Get ready for Brexit’ campaign, in what looks set to be a pivotal week in UK politics, the latest PMI index reinforces the need for manufacturers to prepare for every eventuality, as it hits a seven year low at 47.4.

"First, manufacturers need to anticipate and prepare for any short-term disruption Brexit could have to trade, resource, the supply chain and cashflow. Second, understand what tariffs might apply to all aspects of production and map out your import and export relationship, considering rules of origin and the impact on your wider supply chain. And finally, monitor currency rates which could have a significant impact on your pricing strategy in the short to medium term.

"This prolonged state of uncertainty is stalling investment, so the slowdown in orders is not surprising. However, disengaging from Brexit at this point will negatively impact business resilience and some hard short-term decisions may need to be taken in the interests of long term sustainability."

Mark Hughes, Regional Vice President UK & Ireland at Epicor Software: “With ongoing Brexit tensions signalling a decrease in UK manufacturing demand, firms must prepare as best as possible for what our departure from the EU could bring. Whilst firms don’t know what’s going to happen at the end of October, or how they will be impacted, they must be reactive and ready for when the changes come. Here, the manufacturers investing in technologies that will give their business agility will be best-placed to cope with fast-evolving market scenarios. In these unpredictable times, modern ERP systems will enable manufacturers to respond to changes within the supply chain, adapt easily to new business models, and gain data-driven insights that inform decision-making and strategy.

“To maintain—and increase—future manufacturing performance, manufacturing firms must be prepared to adapt to potential new regulations that could alter trade processes and possibly affect growth trajectories.”