UK Manufacturing Output, 1st Quarter 2021: The Office for National Statistics (ONS) data shows that manufacturing output increased by +2.1% in March (compared to February) but because of a weak month in January, there was a quarter-on-quarter fall of -0.7% compared to the 4th period of 2020 and output was -1.7% lower than a year earlier (Q1-20). On a quarterly basis, the pre-pandemic marker is taken to be the 4th quarter of 2019 - compared to this benchmark, total manufacturing output in the 1st quarter of 2021 was at 96.6% so the recovery still has a little way to run.
We will focus mainly on the quarterly trend with occasional reference to the latest monthly data (March). For the monthly data, the pre-pandemic point is February 2020 - so, for example, manufacturing output in March was at 97.8% of its level before the crisis on a monthly basis.
Drilling down into the detail, the first stage is the sub-sector breakdown where capital goods is the most interesting for MTA members. Here, output fell by -1.3% compared to Q4-20, was -4.1% lower than a year earlier in the 1st quarter of 2020 and is at 91.1% of the pre-pandemic level; this is a little worse than for manufacturing as a whole, mainly because January was weaker in this group of industries. It is worth noting that both intermediate goods (things that often go into other products) and consumer non-durable goods are back above their pre-crisis level in the 1st quarter of 2021.
Turning to the individual industries, there is a mix of trends with the Machinery industry being the star performer with quarter-on-quarter growth of +3.2% which has taken the level of output to +2.8% higher than a year earlier. However, because this industry saw output falling a year ago, it is still only at 94.3% of the pre-pandemic level 5 quarters earlier. Nonetheless this is good news with particularly strong output growth in March 2021 which took the index to its highest level since October 2019.
There was less good news in other industries; output of the Automotive industry was -11.4% lower than in the previous quarter but, thanks to a weak start to 2020 and the recovery towards the end of last year, output in Q1-20 was +1.8% higher than a year earlier. However, despite the fact that output had been falling since the start of 2018, the Q1-21 level was only 90.4% of the pre-crisis point. This industry was affected more than some others by the disruption to supply chains - there was an increase in output at the end of 2020 in anticipation of issues around the end of the Brexit transition period and then the inevitable correction at the start of 2021 which, in the end, may have been more about managing stock levels than actually being caused by shipping delays. As this year has progressed, this industry is now being affected by the global shortage of micro-chips which may be part of the explanation for the fall in output in March but will have a more significant impact on the 2nd quarter figures.
Separate data from SMMT on the unit numbers of cars and engines produced in the UK has shown a turning point in March. This is the first month in which the rolling 12-month total of units produced has increased compared to the previous month since well before the crisis. Given the almost complete shutdown of this industry in April and most of May last year, this trend will continue unless the micro-chip shortage becomes so serious that the complete closures are repeated, albeit with a different cause.
The Metal Products industry, which includes the activity of many sub-contractors, saw output fall by -1.2% compared to the previous quarter and by -2.9% over the level of a year earlier. Output did increase in March (by +2.8% compared to February) but this was the only positive month in the quarter. Compared to the pre-pandemic level, output in the 1st quarter of 2021 was at 95.7%.
We have saved the really bad news until last - output of the Aerospace industry fell by -5.4% compared to the previous quarter and was -38.6% lower than a year earlier; quarterly output is only at 63.1% of its pre-pandemic level. On a monthly basis, output of this industry fell again in March 2021 (-1.0%) and has been negative in five of the last 6 months, indicating the difficulties that are being experienced in this industry.
You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (12 May) or request it from MTA; we also have an analysis of the key industries which is available to members - please contact Geoff Noon (email@example.com) if you would like these charts.
UK GDP, March and 1st Quarter 2021: The ONS also published the GDP data for March and the first estimate for the 1st quarter - again, we will focus mainly on the latter trends. As expected, the UK economy contracted at the start of 2021 with school closures and the sharp fall in retail sales early in the quarter holding back growth in the services sector.
The headline figure shows a fall in GDP of -1.5%, which was slightly less than expected and smaller than the fall we saw in the 1st quarter of 2020 where a shorter period had been affected. In part this reflects businesses having adapted to lockdowns and maintaining more of their activity in some parts of the service sector but it is also partly because the recovery is still incomplete so the fall in activity came from a lower level.
We have already looked at the decline in manufacturing but there was a larger reduction in the service sector which saw output fall by -2.0% compared to the 4th period of 2020 and is now -8.7% lower than at the end of 2019 (pre-pandemic). As with manufacturing, there is a mixed picture across the various elements of the service sector with school closures meaning that education was the largest contributor to this fall, with hospitality and wholesale activities also seeing a sharp reduction. The health industry saw “output” increase in the quarter with the estimates including the Test & Trace service and adjustments to include the vaccination programme.
The only sector of the economy to grow quarter-on-quarter was construction which was up by +2.6%, mainly because of an increase in March of both private housing (new work and repair/maintenance) and private commercial new work. However, this sector remains -3.4% below its pre-pandemic level.
Given that the UK economy grew in the 4th quarter of 2020, we will avoid a double-dip recession (unlike some European countries). This confidence of growth in the 2nd quarter of this year comes from the data for March which showed GDP growth of +2.1% (compared to February). All three major sectors of the economy (services, manufacturing and construction) expanded in the month, giving some momentum as we go into the 2nd quarter which will see more re-opening of the economy that should mean a positive GDP figure for the quarter.
Despite the growth in March (and February which was also revised up to +0.7%), the monthly value of GDP is still 5.9% lower than in February 2020 (the month before the pandemic hit the UK economy) and is 1.1% below the initial recovery peak from October 2020.
In the interests of remaining “brief”, we will take a look at the trade and investment data which was also part of this release next week but in the meantime you can get more details from the ONS Statistical Bulletins for the monthly and quarterly GDP which are available from their web-site at https://www.ons.gov.uk/releasecalendar (13 April) or you can request them from MTA.
Bank of England’s Monetary Policy Report, May 2021: As part of their meeting last week when the Monetary Policy Committee voted unanimously to keep the Bank Rate (of interest) at 0.1%, the Bank of England has released its Monetary Policy Report. This sets out the economic background and thinking behind the decision and you can access the report at https://www.bankofengland.co.uk/monetary-policy-report/2021/may-2021.
The key points were:
- Covid weighed heavily on UK economic activity at the start of 2021.
- Vaccines are now helping the UK economy to recover rapidly by reducing the level of infections and, probably, also the rate of transmission.
- Inflation is below the target of +2% but the MPC expects it to rise to around the target level this year as the effects that have lowered the rate fade out of the calculation.
One section of the report is the update from the Bank’s Agents on business conditions. This is on pages 33/34 of the report which can be downloaded from the link above. They note that:
- Manufacturing output continued to improve as customers rebuilt stocks that had been run down in the early part of 2021. Some contacts reported that demand from EU customers had returned to normal levels and that demand from the US, China and Australia had also risen.
- There was also strong demand for those supplying the construction industry but the continued restrictions on movement are depressing output for civil aviation and the food & drink sectors.
- For the automotive industry (and some other areas of activity) it was noted that output was constrained by delays to imported materials and components - although not stated specifically, it seems likely that this is the global shortage of micro-chips rather than either Covid or Brexit related issues.
- Several sectors reported that investment projects should resume after being put on hold during the pandemic. Although the plans vary by sector, common themes included spending on digitalization, automation, upgrading machinery and R&D.
- A number of contacts said that they had been encouraged to bring forward investment plans by the super-deduction allowance for spending on plant & machinery.
European Industrial Output, February 2021: Eurostat has also published the European data on industrial production. This has a slightly different coverage to the UK data that we report as while manufacturing makes up the majority of this sector, industrial production also includes output of the energy, extraction and utilities industries. They also only publish monthly figures in their “euroindicators” report so the 3-month rolling averages are not available in the same way as for the UK.
Total industrial production in the EU was +0.6% higher than in February but the Euro-zone only saw growth of +0.1%; this marks a further widening of the gap that goes back to last summer. Looking back over 12 months we get back to the start of the pandemic so for the next few months we will see some large growth rates in this comparison; as a result, industrial production in the EU was +11.0% higher than a year earlier while the Euro-zone saw growth of +10.9%.
At the sub-sector level, the capital goods industry in the EU saw output fall (a direction of trend shared only by durable consumer goods) by -0.4% while in the Euro-zone it was down by -1.0% (the comparable UK figure was growth of +2.1%). As noted above the 12-month comparison shows very different trends with growth in capital goods output of +15.9% for the EU and +16.1% for the Euro-zone countries.
For the next few months we will look at the month-on-month trend for the countries rather than using the 12-month comparison as the latter will be distorted by the pandemic. Therefore, compared to February, of the 25 Member States plus Norway (which Eurostat also reports on) which have published their March data, 17 saw total industrial production increase in March and 9 registered a decline. The strongest growth was in Denmark (+4.9%) and Lithuania (+4.5%) while the largest falls were in Luxembourg (-4.4%) and Belgium (-4.0%).
The Eurostat News Release can be downloaded from their web-site at https://ec.europa.eu/eurostat/news/news-releases (12 May) or requested from MTA.