Coronavirus starts to weigh on UK manufacturing sector, despite surge in output - survey
UK manufacturing output hit a 10-month high in February, as Brexit-related political turmoil eased - but there were signs the coronavirus outbreak was already starting to weigh on the sector.
The IHS Markit CIPS UK Manufacturing PMI for February was 51.7, a slight downward revision on the flash estimate of 51.9 but up on January’s 50.0. It is the first time that the PMI has posted above the neutral mark for ten months. A reading above 50.0 is regarded as growth, while anything below is deemed a contraction.
The output index was 52.2, compared to 50.1 in January, the fastest pace of growth since April 2019.
However, the coronavirus outbreak was already affecting some manufacturers, curtailing expectations going forward.
Overseas demand decreased for the fourth successive month, with companies reporting reduced new work intakes from Asia and China, especially because of the outbreak. Supply chains were also disrupted, with average vendor lead times lengthening by the most since July 2018. There was also an eight-point drop in the Suppliers’ Delivery Times Index, the largest in the survey’s 28-year history.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Optimism rode high, as domestic clients set aside major fears about the economy, Brexit and political uncertainty to get production moving again.
“Companies dependent on instructions from overseas, however, were not so lucky. As factories closed and workforces stayed away in China, client hesitation was fast spreading into other regions of the world.
“With no clear end to the disruption in sight, the gains made by manufacturing sector at the beginning of the year could soon be lost. A vortex of poor UK wealth conditions, underlying remaining Brexit fears and now the coronavirus will strip the sector of any significant wins if supply chains continue to disintegrate in the coming months.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The manufacturing sector cannot catch a break.
“Disruptions to supply chains caused by the Covid-19 outbreak look set to depress production over the coming months. The Suppliers’ Delivery Times Index fell the most in the survey’s 28-year history, signalling that firms will struggle to fulfil orders. Stocks of purchases and finished goods also have begun to fall rapidly.
“Accordingly, we have to brace for a sharp fall in manufacturing output over the spring.”
Howard Archer, chief economic advisor to the EY Item Club, said: “The headline PMI overstates the strength of the manufacturing sector, as a marked positive contribution came from a sharp increase of supplier delivery times. This is normally seen as reflecting strong demand and a positive. But in this instance it was due to the disruption to the supply chains stemming from coronavirus.”