Manufacturing optimism at highest level in two years

1 July 2020

Manufacturers forecast that output will rise over the next year as clients reopen and Covid-19 restrictions ease, according to the latest PMI. 

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index rose to 50.1 in June. While the reading was up from 40.7 in registered in May, it was only slightly above the neutral 50.0 mark, indicating a stabilisation but not a marked improvement in operating conditions.

Production rose slightly for the first time in four months as factories restarted and lockdown restrictions eased. As a result, the intermediate goods sector saw the steepest growth in production, and consumer goods experienced a mild expansion.

Business sentiment also rose to a 21-month high, as over 63% of manufacturers forecast that output would rise over the coming year as clients reopened and restrictions are expected to loosen further.

However, employment fell for a fifth consecutive month as firms reported redundancies, cost control efforts, workforce restructuring and the non-replacement of leavers.

The weak economic backdrop led to lower levels of raw material purchasing and further depletion of stocks of purchases and finished goods. Firms still experienced substantial disruption to supply chains, leading to material shortages, vendor shutdowns and transportation issues.

Duncan Brock, group director at the CIPS, said: “June’s data shows the sector has dragged itself up from a survey-record low just two months ago into a position of no change, as optimism rises to its highest levels for almost two years amongst manufacturers.

“However, output remains at low levels and the sector’s weak position compared to pre-Covid levels means there is a significant amount of catching up to do before manufacturing can relax into a period of growth. Purchasing continues to be hampered by battered and bruised supply chains, logistics difficulties and longer delivery times for the twelfth month in a row as suppliers adjust to the new normal.”

Rob Dobson, director at IHS Markit, said: “The planned loosening in Covid-19 restrictions on the 4th July should aid further gains in coming months. Although the trend in new export business remains weak, that should also strengthen as global lockdowns and transport constraints ease further.

“The main focus is now shifting towards the labour market. Concerns are rising about the potential for marked job losses, especially once the phase-out of government support schemes begins. The news on that footing is less positive, with June seeing a further reduction in staffing levels and, although easing sharply since April's record, the rate of job loss remains among the steepest in the 29-year survey history.”

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