Uk manufacturing growth expected to decline in 2021
Despite the significant financial impacts of the COVID-19 pandemic on the UK economy, progress within the manufacturing sector saw a rise towards the end of 2020. December saw a 37-month high in the UK Manufacturing Purchasing Managers’ Index (PMI) at 57.5, up from 55.6 in November.
The increase, which marks the seventh consecutive month for growth for the UK’s manufacturing sector, was largely down to consumers bringing orders forward before the end of the Brexit transition period on 31st December 2020. The rise can also be attributed to the re-opening of many UK businesses following the second national UK lockdown which took place in November. It’s also important to note that IHS Markit’s manufacturing survey took place between 4 – 18th December, before France closed its borders in response to the new COVID-19 strain detected in the UK..
New order growth and product development led to an increase in production and employment for the manufacturing sector, with output growing in the investment goods and intermediate sectors once again for December.
Rob Dobson, Director at IHS Markit stated “UK Manufacturing PMI rose to its highest level in over three years in December 2020, mainly reflecting a boost from last-minute preparations before the end of the Brexit transition period. Customers, especially those based in the EU, brought forward purchases, boosting sales temporarily. It seems likely that this boost will reverse in the opening months of 2021, making for a weak start to the year.”
Duncan Brock, Director at Chartered Institute of Procurement and Supply (CIPS) notes that despite December’s manufacturing growth, unemployment remains an issue within the sector with material shortages resulting in the highest cost inflation since 2018.
Figures from December also show that optimism amongst the manufacturing sector dwindled during the month with 56% of the industry believing that output would surge within the next 12 months as opposed to 61% in November.
Manufacturing forecast for 2021
Despite the months of growth in 2020, Trading Economics have forecast that UK manufacturing PMI will see a significant decline during the beginning of 2021. It’s predicted that manufacturing PMI will decrease to 51.20 by the end of Q1.
The outlook has been predominantly affected by the new Brexit trading rules which came into effect on 1st January 2021. The UK/PwC Executive survey reveals that a third of firms expect UK business prospects to decrease post-Brexit, with more than a quarter believing that exports with the EU will dramatically fall.
However, the survey also outlines the manufacturing industry’s strategy to build business resilience by investing in people, new products, markets and technologies. 57% of manufacturing companies stated that in 2021, greater focus would be placed on product development, as well as re-shoring overseas activity. 25% of firms also revealed that they would seek additional suppliers within the UK as a priority.
With the aim of increasing productivity in 2021, many manufacturing businesses are also looking to invest in apprenticeships as well as well as training opportunities for existing staff.
In addition to Brexit, COVID-19 also continues to have a significant impact on the manufacturing sector. Food and drink, which is the largest industry within the manufacturing sector in the UK, saw output dwindle 5% during 2020 as a result of lockdown closures within the hospitality industry. The lack of output also saw employment within the industry dip by 0.4%.
It was also reported that UK exports within the food and drink industry fell by 12.9% during the first 9 month of 2020. COVID-19’s impacts caused manufacturers revise their predictions for 2021 output within the UK manufacturing sector, altering forecasts from 5.1% to 2.7%