Alanna Petroff

(CNN Money) -- The UK's biggest auto manufacturer -- Jaguar Land Rover -- is cutting 1,000 jobs in its home market as Brexit and slumping sales hit the quintessentially British brand.

Jaguar Land Rover -- which is owned by India's Tata Motors -- employs about 40,000 workers in the UK who produce over 500,000 vehicles a year.

The company is cutting the jobs at a factory in Birmingham that manufactures the Jaguar F-Pace along with the Land Rover Discovery and various Range Rover models.

It said that a sharp decline in British car sales caused by a loss of consumer confidence contributed to the decision. Jaguar Land Rover's UK sales in March were down 26% compared to the same month last year. Car sales across the industry were down nearly 16%.

Brits have cut back on big-ticket purchases as their wages have been squeezed by a rise in inflation, a side effect of the Brexit referendum in 2016. A sharp drop in the pound following the vote made imported products more expensive and ultimately caused inflation to spike above 3%.

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Demand for Jaguar Land Rover cars has also fallen in Europe due to fallout from the diesel emissions scandal.

Jaguar Land Rover pointed out that "the huge drop in demand in diesels" led to its decision not to renew the contracts of 1,000 workers.

European governments are looking to clamp down on diesel sales after an outcry over the environmental damage caused by the engines. This has even led to calls for bans on heavily polluting diesel cars in some cities.

Drivers are holding off buying new diesel cars as they await clear government guidance on the future.

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The UK's auto manufacturing sector employs over 800,000 workers but Brexit presents a big risk to the industry.

Carmakers rely on free, frictionless trade to get parts and make sales across the 28 nations in the European Union.

Jaguar Land Rover CEO Ralf Speth said earlier this year in an interview with Reuters that Brexit uncertainly was "really challenging" his company and the auto industry as a whole.

"You hardly see inward investment any more or every decision is taking longer," he said.

Auto makers are concerned that Brexit could lead to new tariffs, taxes and transit slowdowns at the UK border.

"A final deal that keeps our frictionless trade links with our biggest market, the EU ... is now a pressing priority," Mike Hawes, the head of the UK Society of Motor Manufacturers and Traders, said in a statement last month.

-- Ivana Kottasova contributed to this article