UK manufacturing upturn constrained by COVID-19 restrictions and supply-chain disruptions

According to the report from IHS Markit/CIPS, the upturn in the UK manufacturing sector slowed sharply at the start of 2021. Output growth eased and new orders fell slightly as producers faced weaker inflows of new export work and temporary supply-chain disruptions caused by COVID-19 restrictions and transport delays (especially at ports) following the end of the Brexit transition period.

The seasonally adjusted Purchasing Managers’ Index fell to a three month low of 54.1 in January, down from December's three-year high of 57.5. Declining new order intakes and a steep reduction in input stocks both weighed on the PMI level.

The main positive influence on the PMI was a marked lengthening of supplier lead times, which (apart from April 2020) was the greatest registered in the near 30-year survey history. Although this is usually a signal of stronger demand resulting from economic growth, the recent trend in vendor performance has mainly reflected supply-chain disruptions caused by COVID-19 restrictions and the end of the Brexit transition period.

Manufacturing output increased for the eighth successive month in January. However, the rate of expansion slowed to its joint-weakest during that sequence, as total new order intakes fell slightly due to lower intakes of new export business. Companies reported that the national lockdown, end of the Brexit transition period, client closures and renewed uncertainty at the start of the year all contributed to the decrease in new orders. There were also reports of EU-based clients having already brought forward purchasing to avoid expected disruption. Sector data indicated that consumer goods was the weakest performing sub-industry in January, seeing steep drops in both output and new orders. In contrast, the intermediate and investment categories saw continued expansions. Small manufacturers meanwhile saw output and new orders fall, in contrast to upturns at medium- and large-scale producers. Manufacturing employment rose for the first time in a year during January, in part reflecting efforts to combat rising levels of work-in-hand at several companies. However, the rate of job creation was only marginal.