UK Manufacturing Output, January 2021: The latest output data from the Office for National Statistics (ONS) shows a fall in manufacturing output of -2.3% compared to December; this is the first negative trend since the decline of -25% recorded in April 2020 as the initial lockdown took effect. The month-on-month fall was driven by lower output in 9 of the 13 sub-sectors of manufacturing with, as we will see later, the transport equipment industries particularly weak.
However, we prefer to concentrate on the 3-month trends - the latest period is November and December 2020 and January 2021, the previous period is August, September and October 2020 and a year ago is November and December 2019 and January 2020. On this basis, manufacturing output grew by +1.7% compared to the previous period but was -3.4% down on the level of a year earlier.
Within the total, the capital goods sub-sector - where most customers of manufacturing technology can be found - saw output grow by +2.5% but was down by -8.5% compared to a year earlier. This reflects a relatively strong position in the last couple of months of 2020 and, given the weak start to 2021, this is likely to get worse as those months move to the other side of the trend calculation before the anticipated growth later in the year.
We have already noted that transport equipment, which covers two of our key industries, was especially weak in the January data but the effect has worked in different ways. For the automotive industry, output fell by one-sixth in January but because it was at its highest for a year at the end of 2020, the latest 3 month block saw output grow by +9.2% and this industry was only -1.0% lower than a year earlier. In contrast, the aerospace industry only saw a modest fall in output in January but has yet to see much in the way of recovery so output in this industry was -9.9% lower than in the previous 3 month period and was -36.3% lower than a year earlier.
The other two industries that we track repeat the general pattern of a weak January not outweighing relative strength at the end of last year but still not recovered to the levels we saw a year ago. For the machinery industry (a wide ranging group of activities that is often referred to as mechanical engineering) output grew by +4.3% compared to the previous 3 months but was -9.1% down on a year earlier. For the metal products industry, which includes sub-contractors, the trends were more muted at +2.6% and -4.8% respectively.
Another way of looking at the impact of the Coronavirus outbreak is to compare the level of output in the latest month (January 2021) with the level in February 2020 which is generally taken to be the last pre-pandemic month. While this was not always the case - automotive output was already falling before the Covid-19 outbreak - it is a useful way of assessing the impact in a single number. For manufacturing as a whole, output was at 94% of the pre-pandemic level but for the sub-set of capital goods it was only 88%. At the industry level, the strongest recovery has been in metal products where the ratio is 90%, closely followed by 89% for machinery and 87% for the automotive industry (see above); the weakness of the recovery in aerospace is emphasized by the fact that output in January 2021 was only 62% of that in February 2020.
You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (12 March) or request it from MTA; we also have an analysis of the key industries which is available to members - please contact Geoff Noon (firstname.lastname@example.org) if you would like these charts.
UK GDP, January 2021: The monthly GDP data released by the ONS showed a reduction of -2.9% for the month but was smaller than most economists had expected despite the sharp dip in manufacturing activity that we noted above. With the consumer-facing parts of the service sector hit by the current lockdown, output of that sector fell by -3.5% in January and the only bright spot was the growth of +0.9% recorded by the construction sector.
Looking back to February 2020 - the last month before the impact of the pandemic - the UK economy has shrunk by -9.0% with services down by -10.2% and manufacturing “only” -5.7% smaller; construction has fallen by -2.6%.
The only parts of the service sector to see significant growth in January (compared to December 2020) were information & communication and human health & social work activity, with the latter driven mainly by an assessment of the activity from the vaccination programme and the test and trace scheme. Construction ran against the overall trend in December so the growth registered by that sector may just be a correction of the weakness in December.
The monthly data often volatile so it is also useful to look at the 3-month trend; this shows a fall in GDP of -1.7% in the latest 3 months (November and December 2020 and January 2021) compared to the previous 3 months (August, September and October 2020). On the same basis, service sector output fell by -2.4% while manufacturing and construction both grew by +1.7%.
You can get more details from the ONS Statistical Bulletin which can be downloaded from their web-site at https://www.ons.gov.uk/releasecalendar (12 March) or you can request it from MTA.
Bank of England’s Agents’ Summary of Business Conditions, 1st Quarter 2021: In conjunction with the meeting of the Monetary Policy Committee (MPC) at which they decided to keep the Bank’s Base Interest Rate at 0.1%, the latest summary of business conditions has been published. This matches the ONS data above in showing that manufacturing activity remains weaker than a year earlier reflecting both Covid-19 and Brexit.
The Bank’s Agents, who meet with around 700 companies across 12 regions of the UK every quarter, noted that the automotive industry remains weak, partly because of a temporary shortage of semi-conductors in the supply chain, but that the industry appears to be stabilizing. Picking up on the theme of a weak January that we saw in the ONS data, the Agents report that this reflects an unwinding of stock-building that took place at the end of 2020 ahead of the new trading arrangements with the EU ad freight delays that created materials shortages.
Perhaps inevitably, smaller companies seemed to be most affected by the changes in the trading arrangements, although the contacts noted that these were easing in terms of shipments to the EU while they continue to report severe disruption to trade between Great Britain and Northern Ireland. There were few reports of contacts being unable to trade with the EU at all, but some said they had relocated distribution hubs to the EU from the UK in order to continue selling to EU countries.
The Bank’s Agents reported that investment intentions (across the whole economy) had picked up modestly but remain weak, with plans mostly conditional on demand recovering over the coming months. The degree of confidence varied by sector, with manufacturers reporting the strongest investment intentions and consumer services firms the weakest. In manufacturing, several contacts reported plans to invest in technology, research and development or to expand their physical capacity, though some also expected to continue to pause investment.
You can get more details on the Bank of England’s Agents report from their web-site at https://www.bankofengland.co.uk/agents-summary/2021/2021-q1 or on request from MTA.
European Industrial Output, December 2020: The last week has also seen the European industrial production data from Eurostat and this paints a different picture to that for the UK – note, however, that while manufacturing makes up the majority of industrial production, this wider definition also includes output of the energy, extraction and utilities industries.
Total industrial production increased by +0.8% in the Euro-zone and by +0.7% for the EU compared to the level in December 2020; looking back a year to January 2020, output increased by +0.1% and +0.3% respectively.
At the sub-sector level, there was a month-on-month increase in output of the capital goods industries in the Euro-zone of +0.4% which put it +0.9% higher than a year earlier (January 2020). For the EU as a whole, the equivalent trends were +0.6% and +0.9% respectively.
Sticking with the 12-month comparison, among the 24 Member States for which the January 2021 data is available, total industrial production increased in 13 and fell in the other 11. The largest reductions were seen in Portugal (-6.5%) and Malta (-6.2%) while the strongest growth was in Ireland (+27.5%), Lithuania (+11.8%) and Poland (+5.6%).
The Eurostat News Release can be downloaded from their web-site at https://ec.europa.eu/eurostat/news/news-releases (12 March) or requested from MTA.
European GDP, 4th Quarter 2020: Eurostat has revised its estimates for GDP and both figures are now back at their original figure with the Euro-zone now estimated to be -0.7% lower than in the 3rd quarter and a decline of -0.5% for the EU as a whole.
As a result of adjustments to the data for earlier periods, GDP in the Euro-zone in 2020 is now put at -6.6% (previously -6.8%) lower than in 2019, with a fall of -6.2% for the EU (was -6.4%).
With the 1st quarter of 2021 likely to see a fall in GDP in most, if not all, countries, the trend for the final period of 2020 is significant because two negatives in a row constitutes a recession. With most countries (Bulgaria, Greece and Romania were the only exceptions) having seen GDP fall in both Q1 and Q2 of last year, another two negative quarters will make this a double-dip recession. Ten of the EU Member States recorded a contraction of their economy in Q4-20 and are, therefore, heading for a second recession; this includes France, Ireland and Italy but not Germany or Spain which both managed modest growth at the end of 2020.
The Eurostat News Release can be downloaded from their web-site at https://ec.europa.eu/eurostat/news/news-releases (09 March) or requested from MTA.