* UK factory PMI drops to lowest since July 2016
* Export orders fall for first time since April 2016
* IHS Markit says data point to flat factory output
* Sterling weakens against dollar and euro (Adds market and economist reaction)
By William Schomberg
LONDON, Sept 3 (Reuters) - British manufacturers had their weakest month in over two years and export orders suffered a rare decline in August, a warning that a world economic slowdown, as well as the approach of Brexit, is weighing on the country’s factories, a survey showed.
The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to 52.8, its lowest level since July 2016, immediately after the Brexit vote, and a lot weaker than a median forecast of 53.8 in a Reuters poll of economists.
Sterling weakened against the dollar and the euro after the data, and economists said that the prospect of leaving the European Union in March next year without any trade agreement appeared to be weighing on sentiment.
“The main reason for the fall in the headline orders was a contraction in export orders, suggesting that the possibility of a ‘no deal’ exit from the EU in March and a moderation in global growth is starting to weigh more heavily on the sector,” said Andrew Wishart, UK economist at consultants Capital Economics.
Rob Dobson, an IHS Markit director, said manufacturing — which accounts for about 10 percent of Britain’s economy — looked increasingly lacklustre in August.
“The latest PMI report is broadly consistent with zero growth in manufacturing production, meaning the sector will likely fail to provide any support to the wider UK economy in the third quarter,” he said.
New orders were the weakest in more than two years, weighed down by the first drop in export orders since April 2016, and hiring by manufacturers almost stagnated.
“Some firms linked lower inflows of new work from abroad to the recent weaker pace of expansion of the world economy,” Markit said, adding the recent weakening of the pound had not boosted exports.
The lack of clarity over the terms of Britain’s departure from the European Union in less than seven months’ time helped push business confidence to a 22-month low.
Inflation pressure remained strong, Markit said, although prices charged by manufacturers grew less quickly than in July.
The PMI for Britain’s larger services industry is due to be published on Wednesday, helping to give investors a clearer sense of whether the economy has managed to maintain its recovery from an early 2018 slowdown. (Additional reporting by David Milliken, editing by Larry King)