UK manufacturers are at their least confident for nearly two years about the prospects for a rise in their business activity on a 12-month view, with Brexit uncertainty cited as a key factor, a survey has revealed.

And manufacturing growth slowed in July, according to the survey published yesterday by the Chartered Institute of Procurement & Supply, fuelling worries among economists over the sector’s performance and prospects.

The manufacturing output index dropped from 55.3 in June to 54 last month on a seasonally adjusted basis, to signal the weakest pace of increase for 16 months.

The survey also shows a slowing of growth of new orders in the manufacturing sector to its weakest pace in 13 months, even though the rate of increase of incoming export business accelerated to its fastest since January.

CIPS’s purchasing managers’ index for UK manufacturing, which measures changes in output, new orders, employment, suppliers’ delivery times and stocks of goods purchased, fell from 54.3 in June to 54 last month. Although it remained above the level of 50 deemed to separate expansion from contraction, it signalled the slowest growth in broad activity in the sector for three months.

The future output index, which measures manufacturers’ expectations of whether their production volumes in 12 months’ time will be higher, lower or the same as now, fell from 72.6 in June to a 21-month low of 69.8 in July.

CIPS said: “July saw the degree of positive sentiment dip to a 21-month low, amid reports of uncertainty regarding both Brexit and the exchange rate.”

In spite of this deterioration in anticipated prospects, CIPS noted that nearly 48 per cent of manufacturing companies still expected output to be higher in one year’s time, with only 8% forecasting a contraction.

The survey also highlights continuing inflationary pressures in the UK manufacturing sector. Input cost inflation remained elevated in July, CIPS noted, amid rising commodity prices and shortages of some raw materials.

As manufacturers passed some of the cost increases on to customers, factory gate prices rose at their fastest pace since February.

Rob Dobson, director at survey compiler IHS Markit, said: “UK manufacturing started the third quarter on a softer footing, with rates of expansion in output and new orders losing steam.

"The upturn in the sector has eased noticeably since the back end of 2017, meaning that manufacturing has failed to provide any meaningful boost to headline GDP (gross domestic product) growth through the year-so-far.”

He added: “The July survey data also shows that the performance of the sector is becoming more uneven, with solid output growth in the investment goods industry being largely offset by intermediate goods production contracting for the first time in two years.

"As the intermediate goods sector supplies other manufacturers, taken alongside weaker growth of total new orders and a drop in business confidence to a 21-month low, this all suggests industry is unlikely to exit this soft patch in the near future.”

Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “The Markit/CIPS…survey points to the manufacturing sector faltering in July after a weakened performance over the first half of 2018.

"Disappointingly for future output prospects, new orders growth slowed to a 13-month low in July.”