UK factory production slows amid Brexit and Covid disruption | Manufacturing sector

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Britain’s manufacturers suffered from mounting supply chain disruption in February as Brexit and the third Covid lockdown weighed down growth in factory production, according to a survey.

In a reflection of continuing border disruption since leaving the EU, the latest snapshot from IHS Markit and the Chartered Institute of Procurement & Supply revealed the third biggest increase in supplier delivery times on records dating back to 1992.

Industrial output rose at the weakest pace in nine consecutive months of growth, as the manufacturing sector’s rebound from the pandemic was held back by worsening supply-chain disruption and rising cost pressures.

According to the survey of 600 manufacturing firms, which is closely watched by the government and the Bank of England for early warning signals from the UK economy, business optimism rose to a 77-month high in February amid expectations for a sharp recovery as Covid restrictions are relaxed.

The reading on the IHS Markit/CIPs purchasing managers’ index (PMI) rose to 55.1 in February, up from 54.1 a month earlier, on a scale where anything above 50 separates economic growth from contraction.

However, analysts said the index was being artificially boosted by Brexit and Covid border disruption. Unlike normal, when longer production lead times would reflect strong economic growth as firms battle to meet demand, pushing up the index, the cause this time around is negative for companies.

About 58% of companies reported longer delivery times from suppliers, while only 2% saw an improvement, as international shipping delays, worldwide demand for raw materials and Brexit-related trade issues weighed on activity.

Rob Dobson, a director at IHS Markit, said: “Look past the headline PMI and the survey reveals near stagnant production, widespread shipping and port delays and confusion following the end of the Brexit transition period.”

In the two months since leaving the EU on terms his government agreed with Brussels, Boris Johnson has admitted there are “teething problems” affecting cross-border trade. In acknowledgment, ministers promised £20m of financial support to help small firms prepare for further customs checks still to be put in place.

But rather than early issues that will fade as firms adapt, company bosses say higher costs and delays are an endemic feature of Brexit and stand as a permanently higher cost of doing business with the EU.

James Brougham, a senior economist at Make UK, the manufacturing industry trade body, said over the short term these barriers were limiting the sector’s ability to fight back from the Covid recession.

“The compound effects of continued Covid-19 related disruption now exacerbated by manufacturers’ cautious navigation of the new UK-EU trading arrangement has created a scenario in which logistical and supply-side challenges are limiting the rate of economic recovery for the sector,” he said.

Separate figures from the Bank of England showed British households paid back £2.4bn of borrowing on credit cards, personal loans and overdrafts in January, in a reflection of weaker consumer spending during the third lockdown.

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Although a smaller net repayment than during the first wave last spring, when more than £7bn was repaid in April 2020, the annual consumer credit growth rate plunged to -8.9% in January, the lowest level since records began in 1994.

The total amount outstanding on credit cards and loans shrank to £199.4bn, falling below £200bn for the first time since April 2017.

The mortgage market remained strong despite the latest lockdown and deadline for the stamp duty holiday at the end of March, with 99,000 new loans approved in January. While down from 102,800 in December, mortgage approvals – an indicator of future lending volumes – remained well above the pre-pandemic monthly average of 67,900.

Hafta Ichi
Source: The Guardian
Keyword: UK factory production slows amid Brexit and Covid disruption | Manufacturing sector

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