Covid-19 Update: The UK Manufacturing Sector

Summary

• The British manufacturing sector continues to suffer due to the devastating impact of the coronavirus pandemic
• The UK Markit/CIPS Manufacturing PMI index recovered in August 2020, but from a very low base of the earlier month
• CBI monthly orders index moved up slightly to (-) 44 in August 2020 from (-) 46 recorded in July 2020
• GfK’s consumer confidence still negative in August at (-) 27
• Car production fell by roughly 20 per cent for July 2020
• FTSE 100 is at a lower level in September, as compared to July 2020
• British economy will not recover fully until 2023: KPMG

The IHS Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) increased to reach a value of 55.2 in August 2020, as compared to 53.3 during the previous month of July 2020. The index mainly calculates the pace of growth and gives a measure of the sentiments of the purchasing managers about the future growth of the sector.

The manufacturing sector in Britain continues to remain far behind its pre-pandemic levels in terms of the total volume of the output.

Most of the businesses surveyed were still laying off staff. In fact, August 2020 was the seventh consecutive month when job losses took place across the nation’s manufacturing sector.

Also Read: UK Services and Manufacturing Sectors Display High Growth

CBI monthly orders index

In a separate survey by the Confederation of British Industry (CBI), the industry association for the British manufacturing firms, the UK manufacturers ’s woes have been revealed. The results of the monthly survey conducted by the CBI that calculates industrial trends and measure of new business orders depicted that more than half the manufacturers surveyed felt their order books remained below the normal levels. The CBI monthly orders index moved up slightly to (-) 44 in August 2020 from (-) 46 recorded in July 2020. Economic experts were expecting it to touch a higher value of (-) 35 though.

The CBI survey said that on the positive side, things are improving, even if slowly, and the next three months could see the output shortfall to be lesser than before. The pressure on the sector would slowly begin to ease out in the next quarter, according to the survey results.

GfK’s consumer confidence still negative

Low consumer confidence is the main dampener that is delaying a pick up in consumer demand across all good and services, including manufacturing. With so much of uncertainty surrounding the employment scene, steady income flow, and eradication of the coronavirus pandemic, people fear spending their hard-earned money.

The UK GfK consumer confidence index for the month of August 2020 showed a reading of (-) 27, which is a very low value. The month of July 2020 also saw exactly the same reading, implying that the consumer confidence of Britishers has not improved even slightly over a month’s period and they are pessimistic about the prospects of an early economic recovery in the country. The sub-index measuring the strength of the economy in the eyes of the consumers fell by one point to (-) 62 in August 2020 as compared to the previous month of July 2020.

British manufacturing firms are struggling to conduct their operations during the pandemic times. Some have closed factories, while others have cut back on output. Few have even changed their production line completely. However, most have witnessed a major contraction in their demand and challenges around the disrupted supply chain.

Cars production suffering

According to the Society of Motor Manufacturers and Traders (SMMT), the trade association for British automotive industry, shutting down of car factories during the March to mid-May 2020 period has led to losses worth £8.2 billion for the British car industry.

SMMT has also stated that country’s car manufacturing production dropped by one-fifth during the month of July 2020. The main factors hampering the economic output of the sector are social distancing norms and uncertainty around the UK economy’s recovery. The month saw a year-on-year loss of 0.3 million number of cars.

FTSE 100 dropping

The FTSE 100 index is continuing to fall since past one and a half months. It touched a level of 6292.65 points of 15 July 2020 and has dropped to 5827.38 points on 1 September 2020 at 2.34 PM, as worries persist about the UK economy’s recovery. The index’s one-year return was recorded at (-)22.29 per cent with a 52-week range of 4,993.89 / 7,674.56. Its net market capitalisation stood at GBP 1,499,285 million with a dividend yield of 5.03 per cent.

The highest closing value of the index in the recent past was noted on 22 May 2018 when it rose to touch a value of 7,877.45 points.

Also Read: 10 FTSE 100 Stocks Going Ex-Dividend On 20 August 2020

British economy will not recover fully until 2023: KPMG

KPMG, the leading global consulting firm, in its latest quarterly outlook has predicted that the UK economy will not be able to reach its pre-Covid levels of economic output until early 2023. It has forecasted the country’s gross domestic output to plunge by 10.3 per cent for the year 2020. In case a second lockdown is imposed across Britain, the country’s economic output could plummet by 12.6 per cent, the forecast elaborates.

The consulting firm expects the national unemployment rate to shoot up to 5.9 per cent for the year 2020 and to 8.2 per cent for 2021. The prevailing rate of unemployment in the UK stood at 3.9 per cent, according to latest government statistics.

Also Read: A Closer Look At The UK Economy’s Recovery Scenario

To sum up, the British manufacturing sector is facing unprecedented times and continues to suffer job losses, low production, and subdued demand levels. While the UK Markit/CIPS Manufacturing PMI index recovered in August 2020, but the output level is still lower than pre-pandemic times. The firms in the sector are trying their level best to contain cost and survive the sluggish economy period, despite the prevalent low consumer sentiments. While the worst of the recessionary period might be over, which the sector confronted during the lockdown, however, there still seems to be a long way to go before one could say that the British manufacturing sector is on a sustained path to the economic recovery, given the uncertainties surrounding the eradication of the pandemic.