UK manufacturing sector showing signs of recovery

Britain’s manufacturing sector is showing signs of tentative recovery amid the relaxation of COVID-19 lockdown restrictions in the UK.

The latest IHS Markit / CIPS UK Manufacturing PMI survey performed better than expected, reaching its highest level in a decade in March.

UK Prime Minister Boris Johnson kick-started the economy after easing lockdown measures last month, which allowed outdoor gathering of six people or unlimited numbers from two households. This month has seen the reopening of non-essential businesses to resume business activity. As a result, the UK Manufacturing Purchasing Managers’ Index (PMI) rose from a 10-year-high of 58.9 in March.

Rob Dobson, a director at IHS Markit said “signs of Spring have appeared in the UK manufacturing sector, with the PMI hitting its highest level in a decade. Growth of output, order books and employment all gathered momentum and optimism about the year ahead improved further.”

The UK Manufacturing PMI remains well above the 50 mark, which separates economic growth from contraction. Anything below 50 suggests the economy is shrinking, whereas a figure above 50 denotes growth.

The data revealed is a sharp upturn from the chaos experienced at the beginning of the year as a result of post-Brexit uncertainty as well as the introduction of the UK’s third national lockdown.

Whilst the figures remain positive, Dobson suggests that cross border trading will continue to face delays as a result of Brexit regulations and new paperwork introduced at the borders, which is likely to encourage supply chain disruptions.

These promising indicators triggered a rise in global stock markets, among other factors that are signalling hope for global economic recovery. This week it was revealed that China’s producer prices rose in March by the most since July 2018 due to surging commodity costs.

Global stock markets rallying amid improved optimism

After IHS Markit published the UK Manufacturing PMI for March, the FTSE 100 saw an uptick and is continuing to rise this week, up 0.63% at 6,983.

Markets across Europe and Asia have also recorded new gains, and Wall Street is higher in trading this afternoon.

The Nikkei 225 Index is 0.073% up at 29,642.69, and the Dow Jones Industrial Average (DJI), which measures the stock performance for thirty of the largest companies in the United States is 0.86% higher at 34,020.37.

Whilst increased investor optimism had contributed to the pound’s (GBP) performance, it is currently falling against the euro (EUR) as the EU ramps up its vaccination efforts and the news that Andy Haldane would step down as Bank of England (BoE) Chief Economist.

Pound Sterling (GBP) has slipped against most major currencies, including the US dollar (USD) and the euro (EUR). The pound to US dollar (GBP/USD) exchange rate is trading at USD 1.398 and the pound to euro (GBP/EUR) exchange rate is above EUR 1.162.

Despite the British pound’s (GBP) underperformance, economists believe that Sterling will be on course to make a sharp recovery during Q2. It is thought that UK manufacturing sector will continue its upward trajectory with the reopening of UK businesses and easing of coronavirus restrictions.

Manufacturing sector urges the UK government to provide strategic support

Companies have urged the British government to provide support to crucial strategic manufacturing sectors to prevent permanent, long-standing damage to the industry.

Make UK (formerly known as EEF), who is the voice of UK manufacturing and engineering asked MPs to remove security restrictions on loans, protect significant numbers of highly skilled jobs in the industry and support critical supply chains across the UK.

The organisation insisted that government support is vital to ensure the short-term survival of the manufacturing sector through the coronavirus pandemic. In their latest report, they revealed that almost three-fifths of manufacturers believe that it will take over a year to recover under the current conditions.

Make UK commended the government’s furlough scheme but believe that UK Prime Minister Boris Johnson should take a more radical approach to protect the UK’s internationally competitive position.

Without direct financial support, Make UK says that leading companies will not be in a position to take employees off furlough and will resort to making redundancies to protect their business.

Make UK Chief Executive, Stephen Phipson stated: “Thousands of companies have accessed loans to survive the lockdown. The government needs to intervene to ensure they have access to capital to service the debt, and to grow in the future.”

A survey conducted among 2,000 adults and commissioned by industrial communications firm Cadence Innovation Marketing also found that the public is backing support for the manufacturing industry.

They revealed that one in four survey respondents believe a long-term strategic plan will allow the manufacturing sector to increase productivity and competitivity, which will protect the industry against future pandemics and act as a pillar for the UK economy.

The manufacturing industry contributes almost 20% to UK gross domestic product (GDP), and investors are likely to advocate further fiscal stimulus for the sector as it will aid overall economic growth.