- Purchasing managers report that the manufacturing sector showed considerable resilience in November, despite the lockdown in England and restrictions on economic activity elsewhere
- Lessons have been learned in keeping manufacturing activity going from the previous lockdown – many factories have been adjusted to meet social distancing requirements so employees can still work
- Additionally, there is an appreciable lift to manufacturing activity coming from stockpiling and increased demand from the EU ahead of the ending of the UK-EU transition arrangement on 31 December
- The manufacturing PMI improved to a 35-month high of 55.6 in November (revised up from the ‘flash’ estimate of 55.2) from 53.7 in October. This contrasts with the ‘flash’ services PMI falling to a six-month low of 45.8 in November from 51.4 in October
- Investment and intermediate goods were the strongest performing manufacturing sectors in November, while the consumer sector lagged. This contrasted with the consumer sector leading the UK economy’s bounce back in Q3 and fuels suspicion that the lockdown and other restrictions, along with increased caution, will hold back consumer spending
- The survey reported a pick-up in manufacturing output in November, while confidence in future output rose to a six-year high. Exports rose at the fastest pace since January 2018, although overall new orders growth slowed modestly due to some softening in domestic demand
- Manufacturing jobs were cut at the slowest rate since February, although the decline was still considerable
- The performance of the manufacturing sector in November reinforces belief that the overall impact of the national lockdown in England and other restrictive measures on economic activity in Q4 2020 will be markedly less than occurred in April and overall in Q2 2020
- The EY ITEM Club believes that GDP contraction will be no more than 4% in Q4. The decline in GDP could be less than this but the EY ITEM Club suspects that the pick-up in economic activity after the English lockdown ends on 2 December will be limited as restrictions on activity remain appreciable overall. This would result in overall GDP contraction around 11.5% in 2020
- There is likely to be further support to economic activity in the immediate future from stockbuilding ahead of the UK-EU transition arrangement on 31 December while the Chancellor’s extension of the furlough scheme to the end of March should limit the near-term rise in unemployment and help activity
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The latest purchasing managers survey points to the manufacturing sector showing considerable resilience in November amid the lockdown in England and restrictions on activity elsewhere.
“The Government has stressed that it wants manufacturers to stay open during the lockdown and many factories have been adjusted to meet social distancing requirements so employees can still work.
“It is also evident that there was an appreciable lift to manufacturing activity in November coming from the stockpiling of critical inputs and increased demand from the EU ahead of the ending of the UK-EU transition arrangement on 31 December.
“The manufacturing PMI rose to a 35-month high of 55.6 in November (revised up from the ‘flash’ reading of 55.2). It had fallen to 53.7 in October from 54.1 in September and a 30-month high of 55.3 in August. November’s rise took the manufacturing PMI further above the 50.0 level that indicates flat activity.
“November’s rise in the manufacturing PMI was in marked contrast to its fall to 32.6 in April from 47.8 in March – from 51.8 in February – following the 23 March lockdown.”
Output grew at a faster pace in November; new business expanded at a reduced rate despite foreign demand rising to 33-month high
Howard Archer continues: “Output growth picked up in November and was at a healthy level with the index at 56.3. Markit indicated that the upturn in production volumes was linked to companies reopening following COVID-19 closures earlier in the year and improving demand.
“Output growth in November was led by the intermediate and investment goods sectors. However, consumer goods production and new orders were reported to have fallen for a second month. This contrasted with the consumer sector leading the UK economy’s bounce back in the third quarter and fuels suspicions that the lockdown and other restrictions, along with increased caution, will hold back consumer spending.
“New business growth was decent overall despite easing back to a five-month low due to softer domestic demand. Export orders rose at the strongest rate since January 2018. There were reports of foreign orders being lifted by purchases by EU companies ahead of the ending of the withdrawal agreement.
“Markit reported the strongest increase input buying volumes since March 2019, which reflected Brexit uncertainty and a subsequent build-up of critical inputs before the end of the transition period.
“Confidence strengthened to a six-year high in November, likely reflecting positive vaccine news. Nevertheless, there were uncertainties over the future UK-EU relationship.
“Jobs were cut at the slowest rate since February, although the decline was still considerable.
“Input prices rose at the fastest rate for two years. This was attributed to higher raw material costs, input shortages and suppliers raising prices. Output prices rose at the fastest rate so far in 2020 but manufacturers’ margins were squeezed.”