The PMI 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.
Supplier lead times lengthened significantly, reaching the highest figure recorded in the near-30-year history of the PMI survey (aside from April 2020, at the start of the COVID-19 pandemic). 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.
The latest PMI data is released on the same day that a major Make UK report has found that over 60% of manufacturers are seeing 'significant' disruption since the Brexit transition ended. The manufacturers' organisation warned that "Government needs to move quickly to get around the table with the EU" to sort out any border delays and paperwork issues that are hampering trade.
| Read more: Make UK report finds 'significant delays' affecting majority of manufacturers |
Manufacturing output grew for the eighth consecutive month, albeit at the joint-slowest rate during that time as new orders fell to reflect a lower number of export contracts. 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 ahead of the end of the transition period on 1 January.
On a positive note, January saw the first rise manufacturing employment numbers in a year.
Commenting on the data, Chris Barlow, Head of Manufacturing at MHA, said: “The fall in the index compared to previous months is no surprise; UK manufacturing was artificially boosted in December 2020 because companies took measures to avoid the anticipated Brexit chaos at UK ports. Now Brexit trade friction is starting to bite.
“As Brexit comes on top of Covid-19 and all its attendant problems, manufacturing firms lack confidence. Many are understandably worried about cashflow and for this reason are holding back new investments. It is time for the government to help the sector with a new industrial strategy.
“UK manufacturing needs a renewed focus on skills and innovation. The government needs a combined policy where additional funding, possibly in the form of R&D relief as well as improved training and apprenticeship schemes go hand in hand with promoting innovation. If this is done quickly and well it should restore confidence and kick-start investment in the sector. If nothing is done, there is more pain to come for UK manufacturers.”
Simon Jonsson, head of industrial products at KPMG UK, said: “There is little surprise the Index has slipped back. The pressure on the build-up of COVID-19 contingency supplies and increase in stockpiling ahead of anticipated Brexit disruption on the 1st January has eased since the start of the year.
“What is encouraging is that the industry remains in growth. If, as it is hoped, the rollout of the vaccine encourages a consumer-led recovery in the UK then we should expect to see confidence increasing among manufacturers in the months ahead.”
Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank, said: “The November and December figures were bolstered by stockpiling ahead of the end of the Brexit transition period, so January’s modest growth is largely unsurprising. In recent weeks, manufacturers have grappled with challenges such as parts shortages due to international trade disruption and increased staff absences due to Covid-19. Both challenges are near impossible to overcome quickly, but solace should be taken in the sectors’ diversity and reputation for quality, which means it’s well placed to be among the first to return to faster growth out of the grips of current disruption.”
