UK Manufacturing: the impact of a third national lockdown
Following a significant increase in COVID-19 cases in the UK - which has reported a total of 60,916 cases today - UK hospitals are facing severe pressures as admissions continue to rise.
The drastic increase has been attributed to the new variant of COVID-19 which has been confirmed to be 50 to 70% more transmissible compared to the first variation.
As a result, January 4, 2021 saw the Prime Minister - Boris Johnson - announce the news of a third national lockdown for England.
Commenting on the announcement made by the Prime Minister, Stephen Phipson, chief Executive of Make UK believes that Johnson is right to take such measures in the face of a renewed national crisis.
“his fight is likely to occupy much of the coming year and, just as it has done since the start of the crisis, industry has supported the national effort and will continue to do so.”
However, Phipson does emphasise the importance of the government revisiting the business support packages, in light of the third lockdown. “Whilst measures such as the furlough scheme are very welcome, businesses are taking on substantial debt, deferring tax bills, postponing mortgage payments and facing empty order books; this cannot continue indefinitely. In strategic sectors like aviation and automotive tonight’s announcement will further damage already fragile demand.”
Phipson calls on the government to bring forward a comprehensive plan for the next six months, delivering certainty, stability and confidence, as well as targeted support for critical sectors. “We must ensure that our great manufacturers can survive the coming challenges and be in a position to help drive the recovery when it comes.”
Agreeing with Phipson that it is essential to put the health of UK citizens first, noting that “businesses will continue to step up in the national interest to support the NHS, employees and customers in the weeks ahead,” Tony Danker, Director-General at CBI, also adds that “there are now a nu mber of imperatives for government to support business [...] British business stands ready to play its full part in the vaccine roll-out, increasing mass rapid testing and acting flexibly to support employees with caring responsibilities, while being attentive to the mental health of millions of employees.
IHS Markit/CIPS: UK Manufacturing PMI near-record high
UK manufacturing trends
For the UK manufacturing sector, growth of output and new orders were both reported by IHS Markit and CIPS as among the best seen over the past seven years, which in turn has led to a strong increase in employment. Despite this, the sector continues to face supply chain delays and input shortages, which resulted in increased purchasing costs and record selling price inflation.
UK Manufacturing IHS Markit/CIPS Purchasing Managers’ Index® (PMI®)
Seasonally adjusted, IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) rose to 60.9 in April, which was an increase compared to March (58.9) and above the estimated 60.7 for April.
Increasing for the eleventh consecutive month, the latest readings are the highest since July 1994 (61.0). The output growth for April has been attributed to the loosening of lockdown restrictions, improving demands and a rise in backlogged work.
“The manufacturing sector was flooded with optimism in April as the PMI rose to its highest level since July 1994, bolstered by strong levels of new orders and the end of lockdown restrictions opened the gates to business. It was primarily the home market that fuelled this upsurge in activity though more work from the US, Europe and China demonstrated there were also improvements in the global economy. This boom largely benefited corporates as output growth at small-scale producers continued to lag behind,” said Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply.
In addition to expanding production, total new orders rose for its third consecutive month, which was attributed to a revival of domestic market conditions, stronger client confidence, parts of the economy reopening and improving global market conditions.
While new exports rose in April, the rate was reported as weaker in comparison to new orders. “Companies reported improved new work intakes from several trading partners, including mainland Europe, the US, China and South-East Asia. Large-sized manufacturers saw a substantial expansion in new export order intakes, compared to only a marginal rise at small-sized firms,” said IHS Markit/CIPS.
UK Manufacturing’s outlook
Remaining positive at the start of the second quarter, 66% of companies forecast that output will be higher in a year's time, which is attributed to expectations for less disruption related to COVID-19 and Brexit, economic recovery, improved client confidence and new product launches.
“Further loosening of COVID-19 restrictions at home and abroad led to another marked growth spurt at UK factories. The headline PMI rose to a near 27-year high, as output and new orders expanded at increased rates. The outlook for the sector is also increasingly positive, with two-thirds of manufacturers expecting output to be higher in one year’s time. Export growth remains relatively subdued, however, as small manufacturers struggle to export,” said Rob Dobson, Director at IHS Markit.
Adding to comments from IHS Markit and CIPS, , Managing Director of Freight and Logistics at Accenture Global said: “While today’s figures are positive overall, the worsening supply situation is still a concern, with rates of both input costs and selling price inflation running far above anything previously seen. Shipping delays and material shortages are driving huge backlogs of uncompleted work and the surge in manufacturing orders is leading to many firms struggling to boost operating capacity to keep up with demand. With business expectations becoming even more optimistic as the economy rebounds, the big question will be whether firms will be able to cope with the surging inflows of new orders.
“As ongoing supply chain issues are still at large, companies with wide international footprints should look to reassess their logistics strategies by running supply chain stress tests and simulations in order to respond quickly to upswings and variability in demand. A flexible and resilient supply chain will be a key way for businesses to remain both competitive and stable as we emerge from the pandemic”