The closely-followed IHS Markit/Cips purchasing managers’ index (PMI) registered 54.1 in January, down from a three-year high of 57.5 in December when many manufacturers stockpiled goods over fears of a no-deal Brexit. Any score above 50 denotes growth.
Manufacturing output increased for the eighth successive month in January – however, the rate of expansion slowed as new orders fell due to a drop in new export business.
Companies said the national lockdown, the end of the Brexit transition period, client closures and renewed uncertainty at the start of the year all contributed to the fall in new orders.
Some purchasing managers also said they saw EU-based clients had brought forward purchases in December to avoid expected disruption in the post-transition period.
Manufacturers in the consumer goods sector saw the weakest performance in January, with steep drops in output and new orders.
The intermediate and investment categories – larger scale manufacturing for long-term projects – saw continued expansion.
Manufacturing employment rose for the first time in a year during January, however, with companies reporting this was to combat rising levels of work-in-hand at several firms.
Raw material shortages, transport delays and increased costs, pushed input price inflation – the cost to manufacturers – to a four-year high in January, which were passed onto clients.
Rob Dobson, director at IHS Markit, which compiles the survey, said: “Whereas many countries are seeing manufacturers provide a much-needed support to economic growth as the service sector is hit by Covid-19, the UK’s manufacturing sector has come close to stalling.
“A mixture of harsher Covid-19 restrictions and Brexit led to near-record supply-chain disruptions, lower exports and increased costs.
“The impact was felt most at consumer goods producers, who reported steep falls in output and new orders. There were also early signs that smaller companies were being hit harder by the tougher operating environment than medium- and larger-scale producers.”
He added that companies are hopeful the restrictions will ease as the vaccine rollout continues, but said the speed of recovery remains uncertain.
Chris Barlow, head of manufacturing at accountancy network MHA, said: “The fall in the index compared to previous months is no surprise; UK manufacturing was artificially boosted in December 2020 because companies took measures to avoid the anticipated Brexit chaos at UK ports. Now Brexit trade friction is starting to bite.
“There is no doubt that the Brexit deal is better than no deal for UK manufacturing, but we are fooling ourselves if we think companies are not experiencing major difficulties as a result of the new red tape.
“UK manufacturing needs a renewed focus on skills and innovation. The government needs a combined policy where additional funding, possibly in the form of R&D relief as well as improved training and apprenticeship schemes go hand in hand with promoting innovation. If this is done quickly and well it should restore confidence and kick-start investment in the sector. If nothing is done, there is more pain to come for UK manufacturers.”