UK manufacturing sharply shrinks in April as EU vote approaches

With uncertainty surrounding the June 23 vote, factories are also struggling with a weaker global economy and a slowdown in the oil and gas industry, a major customer.

Sterling fell and gilt futures rose after the Markit/CIPS manufacturing Purchasing Managers’ Index fell to 49.2 from 50.7 in March, the first time since March 2013 it has fallen below the 50 mark that separates expansion from contraction.

It was below even the lowest forecast in a Reuters poll of economists.

“The sharp drop to a three-year low and another month of reported job cuts could be the clearest sign yet that referendum uncertainty is starting to weigh on the real economy,” Lee Hopley, chief economist at EEF, a manufacturers’ lobby, said.

Manufacturing failed to boost the overall economy for most of the past year and the latest survey suggested the recovery will continue to rely on Britain’s dominant services industry.

Growth slowed to 0.4 percent in the first quarter from 0.6 percent in late 2015, putting the country in the unusual position of lagging France.

A measure of employment in the manufacturing survey was below the 50 mark for the fourth straight month, the latest sign that the labor market is losing steam.

“We expect that sentiment will continue to worsen in the second quarter of 2016 as the June 23 referendum on EU membership draws nearer as businesses become even more cautious with regard to hiring, spending decisions and investment,” Barclays said in a note.

Markit said new orders in April matched February’s three-year low and new export orders contracted for the fourth straight month as the global economy slowed.

The Bank of England has pointed to signs that uncertainty surrounding the EU referendum is curbing investment while recent data suggests that caution is affecting the labor market.