Business

UK’s Covid economic recovery falls behind global benchmark



The pace of the UK’s economic recovery fell behind the global benchmark in January, according to the latest Bank of Scotland UK Recovery Tracker.

The tracker includes indices compiled from responses to IHS Markit’s UK manufacturing, services and construction PMI survey panels, covering more than 1,500 private sector companies.

The output of 11 of the 14 UK sectors monitored by the tracker fell in January, as a third national lockdown came into force.

Consumer-facing services sectors were the most affected by restrictions on trade – including tourism and recreation at 19.3% while transport saw the sharpest decline at 31.5%.

The index is the sum of the percentage burying between 0 and 100 – so an output above 50 means it is rising, while an output below 50 means it is contracting.

Only the food and drink (59.5%), metals and mining (58.2%) and industrial goods (57.8%) sectors recorded rising output in January.

They were also the only UK sectors ahead of the global benchmark – five sectors fewer than December – leaving the UK’s pace of economic recovery behind the rest of the world at the start of 2021.

UK food and drink manufacturers were furthest ahead of the global benchmark during January.

Accounting for their performance, producers cited an increase in orders from domestic supermarkets as global supply chain disruption delayed the arrival of food and drink imports to the UK.

However, some firms also reported that lower demand from the hospitality sector and difficulties exporting to overseas markets had held back sales.

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Firms in the metals and mining and industrial goods manufacturing sectors cited increased global demand for raw materials and other manufacturing inputs.

While UK manufacturers broadly outperformed services businesses for the 11th consecutive month during January, the output of the automotive – 42.4% versus 60.7% in December – chemicals – 45.0% vs 63.2% – and household products – 34.9% vs 57.1% – sectors fell into contraction.

Firms in these sectors cited significant supply chain disruption for falling output, including longer delivery times due to a global shortage of critical components and shipping containers.

The scarcity of raw materials meant that UK manufacturers experienced the sharpest rate of price inflation in four years during January, in addition to a fall in orders from EU clients following a spike in pre-Brexit stockpiling in December and intensifying national lockdown measures on the continent.

The metals and mining (82.1%) and healthcare (80.8%) sectors were the furthest ahead of the global benchmark during January, reflecting strong order books and pandemic-related work, respectively.

Meanwhile, the proportion of UK firms that mentioned redundancies when reporting on their staffing trends dropped to just 8% in January, the lowest proportion since last April.

In contrast, 20% of survey respondents mentioned furlough – the highest proportion since July 2020.

Both findings follow the UK Government’s December update on the Coronavirus Job Retention Scheme (CJRS), which extended the programme to the end of April 2021.

Jeavon Lolay, head of economics and market insight at Lloyds Bank Commercial Banking, said: “The output of consumer-facing services was predictably the most affected by the latest lockdown, with clear indications that activity was hit harder than during last November’s restrictions.

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“However, the performance of those businesses still able to trade was more mixed – while global supply chain disruption and raw material shortages caused major issues for some key manufacturing sectors, it boosted output growth for beverages and food, metals and mining and industrial goods manufacturers.”

Scott Barton, managing director for corporate and institutional coverage at Lloyds Bank Commercial Banking, added: “While businesses are currently operating in challenging conditions, positive growth expectations for the coming year and output growth in some key manufacturing sectors are encouraging indicators of future recovery.

“It will be interesting to see how business growth expectations are affected by the UK Government’s ‘roadmap’ out of lockdown which is due to be published on Monday, and by changes to business support measures announced by the Chancellor in next month’s Budget.”



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