Manufacturing recovery continues despite lockdown fears

Andy Jalil

At a time when the UK is having to make job cuts and redundancies, it is some relief to see that the manufacturing sector continued its strong recovery – from the COVID-19 slump – in September, although it dropped off the record pace set in August.

The IHS Markit/Cips manufacturing purchasing managers (PMI) index stood at 54.1 in September, with any score above the 50-mark indicating growth.
Looking back to earlier in the year, the sector had grown at its fastest rate in 10 months back in February, but signs soon emerged that coronavirus had started to disrupt the industry. The IHS Markit/Cips manufacturing purchasing managers index had hit 51.7 in February, up from 50 the previous month.
However, the coronavirus outbreak led to “sizeable raw material delivery delays, rising input costs and increased pressure on stocks of purchases” which resulted in the sector beginning to struggle at the time before gradually making progress.
In August, the index recorded a score of 55.2, its highest reading in two and a half years. September’s reading was slightly lower than a flash reading of 54.3. The reading means that the PMI has remained above its no-change mark of 50 for four successive months, its longest sequence in expansion territory since early 2019.
IHS Markit said that September saw higher production due to more firms reopening and staff returning to work. A further increase in new orders, including for exports, also helped push production volumes higher. Director at IHS Markit, Rob Dobson said: “September saw UK manufacturing continue its recovery from the steep COVID-19 induced downturn.
“Although rates of expansion in output and new orders lost some of the bounce experienced in August, they remained solid and above the survey’s long-run averages.” He added: “Business sentiment remained positive as a result, with three-fifths of UK manufacturers forecasting a rise in output over the coming year.”
EY Item Club chief economist Howard Archer said: “The purchasing managers survey pointed to manufacturing expansion losing a little momentum in September after reaching a 30-month high in August. Nevertheless, the sector achieved a fourth month of growth and at a still decent rate.”
He added: “Employment in the manufacturing sector fell for an eighth month running, but the rate of decline did at least slow to the weakest since February. Nevertheless, the further decline in jobs provides the context for the Chancellor (Rishi Sunak’s) further support for the labour market with the recently announced Jobs Support Scheme.”
However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that he expected production to fall over the next half year. “We expect production to trend down over the next six months, as demand from companies for investment goods declines”, he said. Adding: “Surveys of corporate investment intentions remain extremely weak, consistent with capital goods production falling back once again.”
Deloitte’s UK partner Duncan Johnston pointed out that even though the sector’s recovery may continue, it is at a slowing pace. “There are some worrying signs such as rising input prices and further job losses last month”, he said, singling out two sectors that are particularly important to the UK economy: commercial aerospace and automotive.
Therefore, “manufacturing leaders are eagerly awaiting the government’s revamped industrial strategy to provide much-needed impetus for recovery, especially in areas outside the South-East”, Johnston added.
Across the Eurozone as a whole, manufacturing hit 53.7 in September, an increase on August’s 51.7 reading. The growth across the region was led by especially strong manufacturing in industrial powerhouse Germany, where the PMI hit its highest level in 26 months. (The writer is our foreign correspondent based in the UK.)