- The manufacturing sector grew faster in March despite ongoing lockdown, with the PMI rising to 58.9 in March – the highest reading since February 2011 – up from 55.1 in February 2021 and a three-month low of 54.1 in January 2021. Revised up from the flash estimate of 57.9, the March reading indicates even faster growth than had been reported initially
- Encouragingly, all elements of the survey were much improved in March. Output growth picked up significantly as did new orders. Jobs growth and confidence in future output were both at seven-year highs while backlogs of work were at an 11-year high
- However, input prices have risen at their fastest rate for 50 months, reflecting significant supply chain and logistic issues, which has led to delivery delays from suppliers and disruption to production and distribution schedules
- The significant improvement in the March manufacturing purchasing managers’ survey adds to the evidence that the economy has come off its January lows. While the economy likely contracted in the first quarter activity due to the impact of lockdown, the decline in GDP was less than had originally been expected
- The EY ITEM Club now suspects that the economy contracted by just over 1% quarter-on-quarter in the first quarter, compared to the 3-4% q/q drop in GDP that we had originally anticipated
- The EY ITEM Club will likely significantly raise the current 2021 GDP growth forecast of 5.0%. The economy is expected to benefit progressively from the second quarter as restrictions on activity are eased, supported by the rapid roll-out of COVID-19 vaccines
- Consumers will play a key role in the UK recovery given the current high savings ratios, especially as it now looks likely that unemployment will rise much less than expected, helped by the extension of the furlough scheme
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The purchasing managers survey pointed to the manufacturing sector expanding at the fastest rate in March since February 2011. The PMI rose to 58.9 (revised up from the flash reading of 57.9) in March from 55.1 in February from a three-month low of 54.1 in January.
“The fact that the manufacturing sector saw healthy expansion in March despite ongoing lockdown reflects the fact that lessons have been learned and experience gained in maintaining operations over the course of the pandemic. For example, many factories have adapted to meet social distancing requirements.
“However, there were still some challenges for the manufacturing sector. Markit reported significant supply chain and logistic issues, leading to delivery delays from suppliers and disruption to production and distribution schedules.
“Output growth improved markedly to a four-month high in March. Investment and intermediate goods saw significant, solid output growth while consumer goods returned to growth after two months of contraction.
“New business rose for a consecutive month in March, and at the second fastest rate for over three years, with expansion across all sector, while export demand rose at the fastest rate so far in 2021.
“Backlogs of work increased at the fastest rate for 11 years, which is supportive to future output.
“Jobs rose at the fastest rate for seven years. Confidence in prospects for the next 12 months was also at a seven-year high.
“Manufacturing input prices rose at their fastest rate since January 2017, reflecting supply chain disruptions affecting raw material supplies. With increased costs passed on to clients, manufacturing output prices also rose the most since January 2017.”