Factory Output in UK Record Fastest Rate of Fall During the Lockdown

Summary

• The factory output in the country fell at the sharpest pace in recorded history during the lockdown
• The increased spending levels seen in some industry since the opening of the lockdown seems to have no impact on the demand conditions of manufactured goods
• The steepest decline has been seen in Automobile, engineering goods and metallurgy sectors

The lockdown period from March to May of this year was one of the worst periods recorded in the history of the manufacturing industries in the United Kingdom, and the situation has also not improved much after it was reopened. The Chamber of British Industries (CBI) has reported that as per its bi-monthly survey conducted among 360 manufacturing firms between the fortnight of late May and Mid-June the pickup of manufacturing activity in the country has not been encouraging. The survey showed that only about 17 per cent of them responded that they had produced more in the passing quarter (Apr-June) than they did in prior quarter, while about 74 per cent responded that they had produced less in the passing three months. The gap between them was of -57 per cent, which is the largest ever recorded in the United Kingdom, according to the CBI

The advent of the pandemic and the imposition of the lockdown proved to be an additional setback for the manufacturing sector in the United Kingdom. When the outbreak was first reported in China and had not even entered the shores of the United Kingdom the manufacturers in the country had started feeling the heat, as China was a major source of intermediate goods for the industry. As factories and warehouses in China stayed closed, several of the major automobile and engineering companies started to issue production and revenue warnings. When finally the coronavirus pandemic entered the United Kingdom, a strict lockdown was necessitated to contain its spread. People were forced to confine themselves up in their houses and production activity in most of the manufacturing units came to a standstill. Now, though the lockdown has been relaxed, neither of the above two decrementing factors have yet subsided. The still strictly enforced social distancing measures have ensured that manufacturers have to operate at reduced productivity levels and strict safety and security checks on goods entering the United Kingdom has meant that for these companies importing components it will take a while before their supply chains get fully restored.

On the order-book side also the situation is very bleak for the manufacturing sector. The CBI in its survey found that only 13 per cent of the firms it had sent the questionnaire, reported receiving orders that were higher than what they generally receive at this time of the year, while 71 per cent reported below normal orders. The gap between the two; -58 per cent, though was large but slightly better than -62 which was recorded in the earlier fortnight. The pandemic has had a negative impact on the psyche of the average British consumer. The uncertainty regarding how long the pandemic threat is going to linger and how long before life is going to be normal, has most people worried about their employment and livelihoods. They have now started to spend on essentials and either postponing or completely obviating non-essential spending. This has resulted in lowering demand for manufactured goods, especially the ones where higher monetary outlays are required. The restricted movement of goods internationally has also affected the exports leaving the shores of the United Kingdom. Engineering goods like automobiles and aerospace equipment are amongst the largest exported commodities of the country since the outbreak of the Coronavirus most of the destination countries for these goods have either restricted the imports of the goods due to the fear of virus containment or to the protect their local industries who are also facing economic distress due to the coronavirus pandemic. The above two demand-side factors are laying heavy on the fortunes of the British manufactures and are also not expected to ameliorate any time soon.

The production slowdown, however, is not uniform across all sectors. Food and consumables manufacturing has hardly seen any slowdown and also not much slowdown has been observed in the pharmaceutical sector. On the other hand, high tech goods, machinery & petrochemicals have seen a major decline in their production levels. The fall in the production in the automobile sector, however, is hurting the country most, the industry which exports 8 out of 10 cars it produces and contributes nearly 14.4 per cent to its export basket is one of the major earners of foreign revenue. This sector is currently facing the steepest slowdown and is also marred by several other logistical bottlenecks that are hampering its turnaround.

The fortunes of the manufacturing sector in the United Kingdom depends to a large extent on how soon life comes back to normal in the country. While several manufacturing Units have started functioning with reduced capacities, but it is still below sustainability levels in most cases. The British exchequer had in the month of March come out with several stimulus measures to protect businesses and jobs in the country. One of the important schemes under those measures was the furloughing scheme Under which the government had undertaken to pay 80 per cent of salaries of staff up to a maximum of £2,500 per person, for employees who are retained by businesses. The manufacturing sector has been able to protect many of its skilled and experienced labour by putting them under the benefit of this scheme. Other than that the Bank of England undertook to guarantee loans taken by large and medium companies to tide through the pandemic slowdown which had a great impact in protecting many companies from going bankrupt in the country.

The social distancing measures put in place by the government to protect people in the workplaces may have slowed down the pace of recovery in the manufacturing industries, but the continuing financial support will also go a long way in protecting them from financial distress. Till now, since the first phase of the opening up of the economy has happened, no large spikes in infection rates have been observed. In the best-case scenario, the economy should fully open up in the next few months, and when it does so will the improvement in the situation for the manufacturers as well as others.