Bank of England’s Agents’ Summary of Business Conditions, Q2-2021: At its meeting this week, the Monetary Policy Committee (MPC) of the Bank of England (BoE) voted unanimously to keep the Bank Rate at 0.1% and by 8-to-1 to maintain the current level of assets purchases.
Part of the input to the meeting is report from the BoE’s Agents who meet with a wide range of companies on a regular basis and compile a summary of the responses to update the MPC members on the current situation. Their latest report notes that manufacturing output has got back to “close to pre-Covid levels” (although it is not clear that there is actually a value or volume measure behind this statement). In addition, the re-opening of the hospitality sector has boosted the food & drink industry, strong demand for construction products has led to a rise in mining & extraction activity and contacts in oil & gas production reported that output was close to pre-crisis levels.
On the downside, there are widespread concerns about the cost and availability of materials with the automotive industry continuing to be constrained by the global shortage of semi-conductors. All this is leading to longer lead times. On Brexit, the immediate concerns about customs declarations, rules of origin and product labelling appear to be easing and it is suggested that EU demand for UK goods has returned. However, many businesses said that they were setting up hubs in the EU to continue selling there and there is little evidence of substitution for imports from the EU taking place.
Investment intentions continue to improve although a lot of this seems to be catching-up on plans that were deferred during lockdown. The Government’s super-deduction announcement seems to have a mixed response although it has boosted (or brought forward) investment for some companies. In manufacturing, around half of contacts expected to increase investment compared with the previous year, mostly to upgrade machinery, expand capacity or spend on research and development.
Capacity utilisation has increased as economic activity revived but, as noted above, for some parts of manufacturing, supply shortages are becoming a constraint.
You can get the full details of the BoE’s Agents report from their web-site at https://www.bankofengland.co.uk/agents-summary/2021/2021-q2.
Flash Purchasing Managers Index, June 2021: The flash Purchasing Managers Index (PMI) for manufacturing in the UK released this week showed a slightly lower reading although at 64.2 this is hardly anything to worry about as it is still indicating a significant expansion of activity in the sector. It is worth reminding ourselves that the lengthening supplier delivery times are part of this story but this does not change the overall picture. The output element of the manufacturing PMI stood at 62.0.
We see something similar in the Euro-zone where the flash PMI for manufacturing was unchanged from May at 63.1 and the output element edged up to 62.4; this suggests that the “false” positive impact from longer delivery times is probably only having a small influence on the overall PMI number. The strongest country within the output figure was Germany while France is seeing a slower rate of growth in new orders.
The other economies to have flash PMI releases are Japan and the USA; they showed opposing trends in the latest release. The manufacturing PMI in Japan fell back a little to 51.5, its lowest reading since February but still in positive territory; in contrast, the reading for the USA edged up to 62.6 and set a new record high level.
Finally, it is worth noting that the PMI does not track levels, so we cannot judge from this indicator whether business is back to pre-Covid levels. It gives a direction of change compared to the previous month and while the distance from the break-point at 50 is an indicator of strength, even this is not an absolute measure.
The flash PMI can be downloaded from the IHS Markit web-site at http://www.markiteconomics.com/Survey/Page.mvc/PressReleases; the final figures for June will be published next week and we will bring these to you next Friday.
CBI Industrial Trends Survey, May 2021: The latest results from the CBI Industrial Trends Survey confirm this trend of a continuing recovery in the UK manufacturing sector but, like the PMI, this does not measure levels (the main source on this is the manufacturing output data published by the ONS).
Output volumes in the three months to “June” (really May given the data collection period) grew at the fastest pace on record (the survey started in 1975). There was an improved balance in 15 of the 17 sub-sectors covered by the CBI report, led by the motor vehicles & transport equipment and food & drink groups. While welcome, this is slightly surprising given the component shortages in the automotive industry and the continued weakness of aerospace (both parts of the first of these sectors) but this tracks change compared with the previous 3 months (in practice December 2020 to February 2021) so this positive trend may reflect weakness in the comparator rather than strength in the current period.
The respondents to the survey expect output to continue to grow at a rapid pace in the coming 3 months, although a little slower than was recorded for the past 3 months.
Total order books in June were at their strongest (i.e. largest positive balance of “up” minus “down”) since May 1988, although this appears to be mainly from the home market as, while export order books picked up slightly compared to the previous survey, this was last higher in April 2019.
Finally, stocks of finished goods fell further into negative territory and are also at an all time low (back to April 1977 for this question).
You can get the Press Release of the CBI ITS from their web-site at www.cbi.org.uk/media-centre (22 June) or request it from MTA.