Britain’s manufacturing sector showed signs of stabilising last month to emerge from the longest downturn since the financial crisis, according to a survey.
The monthly snapshot from IHS Markit and the Chartered Institute of Procurement and Supply, which is closely watched by the Treasury for early warning signals from the UK economy, showed that factory output remained steady in January after eight months of contraction.
Bringing to an end the deepest slump in manufacturing activity since 2009, the IHS Markit/Cips manufacturing purchasing managers’ index (PMI) rose to 50.0 in January, up from 47.5 a month ago. Anything above 50.0 separates growth from contraction. The reading was marginally higher than the 49.8 “flash” estimate made last month.
Reduced levels of political uncertainty after Boris Johnson’s unexpectedly decisive election victory helped to boost new orders and business confidence, with optimism among manufacturers hitting an eight-month high.
Employment levels were broadly unchanged on the month, halting a nine-month sequence of job losses.
Despite the improvement in the PMI reading, growth in the manufacturing sector, which accounts for about a tenth of the economy, remains at stall speed due to a broader global slowdown and lingering uncertainty over Brexit.
Manufacturers warned that weak economic growth in key markets – especially within Europe – dragged down new export orders in January. Although optimism among UK manufacturers rose, it remained low compared with historical standards – in part due to a continuing lack of clarity over the country’s future trading relationship with the EU.
Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, said that the government’s commitment to a clean-break Brexit at the end of 2020 would continue to weigh on the prospects of the manufacturing sector.
“Many manufacturers will be reluctant to invest in new productivity-enhancing kit, while Britain’s future trade links are uncertain,” he added.
The pound sold off sharply on Monday as Johnson outlined plans for a tough stance in trade talks with Brussels, warning that Britain would refuse close alignment with EU rules and reject the jurisdiction of the European courts.
After almost half a century of EU membership, UK manufacturers have developed close ties and complex supply chains with their EU counterparts that could be left economically unviable by higher trade barriers.
Rob Dobson, a director at IHS Markit, said the survey of about 600 manufacturers indicated that business investment remained depressed. “A full revival in capital spending may still be some way off, likely reflecting lingering uncertainty about the Brexit roadmap in the coming year,” he added.
The stabilisation in business confidence among manufacturers follows a difficult period for industrial firms around the world, against a backdrop of weaker global trade due to the US-China trade war.
Although there were hopes of a rebound in manufacturing output and industrial trading activity since the phase one trade deal was signed between Washington and Beijing last month, there are fears the coronavirus outbreak in China could stand to derail the recovery.
Seamus Nevin, chief economist at Make UK, the manufacturing industry lobby group, said: “Business confidence remains fragile and concerns about our future trade rules mean export orders are still falling. This is the main cause for concern so all eyes will be on the nature and quality of any trade deals secured over the next eleven months.”
