The UK’s manufacturing sector shrank at its fastest rate for three years in July after 12 months of decline, a new influential survey has suggested.

The S&P Global/CIPS UK Manufacturing PMI survey returned a reading of 45.3 in July, compared with 46.5 in June.

It is the joint-worst performance for the sector since May 2020, indicating that it is shrinking fairly rapidly.

It marks 12 months of decline for the sector, although it is slightly better than the 45.0 score analysts had expected.

The survey found that companies were hit by weakening exports, as the fall in exports was among the fastest in three years.

Manufacturers blamed a weakening global market, which hit demand from most parts of the world.

The number of people employed in the sector also dropped for the 10th month in a row as firms tried to protect their margins.

While the prices companies paid for supplies dropped again, almost as rapidly as June’s more than seven-year high, businesses did not reduce the amount they charged customers.

Firms said they kept their own prices steady to recover margins lost to recent inflation.

Rob Dobson, director at S&P Global Market Intelligence, said: “July saw a deepening of the UK’s manufacturing downturn.

“Output fell at the quickest pace since January, as overstocked clients, rising export losses, higher interest rates and the cost-of-living crisis coalesced to create a worrying intensification of the slump in demand.

“Although manufacturers maintain a generally positive outlook for the sector, with over half still expecting output to rise over the coming year, other forward-looking indicators show the mire that industry is currently facing.

“Domestic and export demand are weakening, and backlogs of work are declining sharply, all of which likely presages further cutbacks to production, employment and purchasing in the months ahead.

“The only upside is that prices are falling in this environment of sharply deteriorating demand, with cost pressures also helped lower by further repair to supply chains.

“Supplier performance improved for the sixth successive month, while raw material prices fell for the third month in a row.

“However, while good news for inflation, lower prices are largely a symptom of malaise and hence bode ill for manufacturers’ profits, which may in turn hit investment.”