UK Manufacturing Output , December 2021: Data released this morning by the Office for National Statistics (ONS) shows that manufacturing output increased by +0.2% in December, but we will focus on the quarterly trends in this note. This shows no change compared to the 3rd quarter although the level was +0.7% higher than in the final quarter of 2020. This meant that total manufacturing output stood at 97.5% of its pre-pandemic level (Q4-19).
As we drill down into the detail, we discover that the capital goods industries were the worst affected with output in the 4th quarter declining by -2.8% compared to the previous period and -6.1% over the 4th quarter of 2020. This means that it is only 86.6% of the pre-pandemic level and the weakest of the sub-sectors within manufacturing; capital goods and consumer durables were the only sub-sectors where output was below the pre-pandemic level with consumer non-durables more than +10% higher.
At the industry level, the weakest quarterly performance was for machinery where output was -8.0% lower than in the 3rd quarter, although because of a burst in output in this industry in the middle of 2021, the Q4-21 level is only -1.6% lower than a year earlier. Output for this industry at the end of the year stood at 89.9% of its pre-pandemic level.
There was also another fall in output for the aerospace industry with a quarter-on-quarter fall of -8.4% which means that the level was -5.1% lower than a year earlier and only 62.7% of its pre-pandemic level. Indeed, the level for the 4th quarter was the weakest for many years with the exception of the 2nd quarter of 2020 when Coronavirus first struck the economy.
There is some slightly better news from the automotive industry which registered growth of +0.4% compared to the 3rd quarter thanks to month-on-month growth of +7.1% in November and +5.5% in December which suggests that there may be some easing of the supply chain issues which are having the largest impact on this industry. However, output of the automotive industry as measured by the ONS (using seasonally adjusted turnover values) in Q4-21 was -26.9% lower than a year earlier and only 75.2% of its pre-pandemic level.
We have kept the best news until last with the metal products industry which registered quarter-on-quarter growth of +3.3%, taking the level to +1.0% higher than a year earlier, although this is still only 96.0% of its pre-pandemic level.
Finally, the latest release means that we also have our first look at the annual data. Total manufacturing output grew by +6.9% in 2021 following a fall of -9.0% in 2020. Despite the weak picture overall, the capital goods group of industries had one of the fastest growth rates for 2021 as a whole at +6.2% – only intermediate goods grew more rapidly (+9.0%) – but this is entirely because it fell furthest in 2020 so it is not quite the good news it appears to be at first glance.
Among the key industries, the year-on-year comparison shows positive trends for three of our key industries led by machinery where output was +14.6% higher than in 2020; output in the metal products industry grew by +7.1% and the automotive industry had growth of +3.1%. This leaves aerospace where output fell by -9.6% in 2021 following a decline of -25.3% in 2020.
You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (11 February) or request it from MTA; we also have an analysis of the key industries which is available to members – please contact Geoff Noon ([email protected]) if you would like these charts.
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UK GDP, 4th Quarter 2021: For the economy as a whole, the first release of the data for the 4th quarter by the ONS shows that GDP increased by +1.0% which is the same as the downwardly revised rate for the previous quarter. With other revisions during the year, this gives a growth rate of +7.5% for the year as a whole – slightly ahead of expectations – which follows a fall of -9.4% in 2020.
We have already noted that manufacturing was flat on the quarter but the other major sectors grew with construction output expanding by +1.0% compared to the 3rd quarter and services up by +1.2%. At first glance this might seem surprising given that the period ended with a rise in Covid cases which reduced some face-to-face aspects of the service sector but the key is that the largest contributor to GDP growth in the 4th quarter came from the “human health and social work” element of the service sector as a result of an increase in GP visits at the start of the quarter and a large increase in both test & trace activities and the vaccination programme especially in December.
Other aspects of the service sector that grew strongly in the 4th quarter included administrative & support activities (driven by employment agencies and travel agents) and transport & storage (which was pushed up by online festive shopping). In contrast, hospitality and retail sales were affected by the emergence of the Omicron variant toward the end of the period.
The growth in construction only partly reversed the fall in output in the 3rd quarter with both new work and repair & maintenance up by similar amounts.
The quarterly GDP figures are a balance of three methodologies so it is worth noting that there was a sharp increase in non-monetary gold which, while a valid part of the economy, distorts the true picture. The impact of this movement was to halve the UK’s trade deficit from -2.2% of GDP if this category is excluded to -1.1% in total. There was also an increase in business investment in the 4th quarter, although this remains below the pre-pandemic levels. We will take a closer look at both of these data sets next week.
Finally, with the economy growing by +7.5% for the year as a whole, manufacturing was the laggard with its increase of +6.9% with services up by +7.3% and construction leading the way with growth of +12.6%. However, in none of these cases was the fall registered in 2020 reversed. On the quarterly basis, only the service sector is now above its pre-pandemic level of output (this is taken to be the 4th quarter of 2019).
There are more details in the range of ONS Statistical Bulletins which can be downloaded from their website at https://www.ons.gov.uk/releasecalendar (11 February) or on request from MTA.
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UK Profitability, 3rd Quarter 2021: The ONS recently published profitability data for the 3rd quarter of 2021 – this does not come with a statistical bulletin, so it is difficult to comment too deeply on the trends.
It showed the net rate of return (operating surplus divided by capital employed) for manufacturing companies was 9.6%; this is slightly lower than downwardly revised figure of 9.9% for the 2nd quarter and below the 10.7% for the 3rd period of 2020.
The long-run average from 2000 is 10.9% but if you only go back to the start of 2011 (i.e. after the end of the global financial crisis) the average rises to 12¾%.
The ONS data tables are on their website at https://www.ons.gov.uk/releasecalendar (31 January) or request them from MTA.