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UK manufacturing hit by Brexit trade disruption

Growth in UK manufacturing activity fell to a nine-month low in February, as Brexit trade barriers hampered the sector’s exports and its ability to secure raw materials and components from overseas, according to a closely watched survey.

The flash IHS Markit/Cips UK purchasing managers’ index for manufacturing output fell to 50.5 this month, its lowest level since May last year. A sub index for delivery times by suppliers to British manufacturers fell to its lowest level since April last year, with factories often quoting Brexit-related disruption as an issue holding back production.

Official data, meanwhile, showed retail sales in Great Britain falling sharply in January as coronavirus lockdown restrictions inflicted further pain on the high street.

The UK’s exit from the EU single market and customs union on January 1 has resulted in trade barriers between Britain and the bloc, and the preliminary manufacturing PMI based on data collected between February 11 and 17 highlighted the impact of the new commerce arrangements.

The survey found that British manufacturers’ export sales declined, with respondents commenting on “difficulties fulfilling orders to existing clients in the EU due to higher costs and transportation delays”.

Chris Williamson, economist at IHS Markit, said: “The manufacturing sector’s performance worsened amid escalating Brexit-related export losses and supply chain disruptions.”

He added that Brexit was the most commonly cited cause of delays to supplies cited by manufacturers responding to the survey. Other factors mentioned by respondents included problems with shipping and strong global demand for raw materials.

The flash PMI for services in February was 49.7, compared with 39.5 in January. The composite PMI, an average of manufacturing and services, was 49.8 in February compared with 41.2 in January.

Both readings for February indicated a small majority of businesses reporting a contraction in activity, largely reflecting the impact of the latest lockdowns across the UK.

However, business expectations captured in the flash PMI for the year ahead improved in February, reflecting an anticipated economic rebound because of progress with the UK rollout of Covid-19 vaccines.

Meanwhile, the Office for National Statistics said the volume of retail sales in Great Britain fell 8.2 per cent in January, when England went back into lockdown, compared with December.

The drop recorded by the UK statistical agency was much larger than the 2.6 per cent decline forecast by economists polled by Reuters.

Line chart of Index, rebased showing retail sales in Great Britain plunged in January

Jonathan Athow, deputy national statistician for economic statistics at the ONS, said: “The latest national lockdown led to a sharp monthly fall in January’s retail sales.”

There were further indications that consumers and businesses were adapting to Covid-19 restrictions, with the share of online sales rising to 35 per cent of January’s total — the highest proportion on record.

Economists expect a rebound in retail sales in the spring as the economy reopens, “but the pandemic-induced switch to online retail is unlikely to be reversed, posing ongoing challenges for the high street”, said James Smith, economist at ING.

Many retailers are therefore calling for more government support in chancellor Rishi Sunak’s Budget on March 3.

Lisa Hooker, consumer markets leader at the consultancy PwC, said: “Retailers will be hoping for extensions to government support, such as the extension of the furlough scheme beyond April, and extension of the commercial property moratorium on evictions and the business rates holiday beyond March.”

This article was first published at https://www.ft.com/content/e1a526ba-f1c8-45df-88f1-9aa32fa4af3e

Posted in

The Markets Today