Following the release of our updated forecasts a fortnight ago, this week saw our Spring Economic Presentation for MTA members. The focus of this was to take members through the new forecasts as well as to provide an update to the economic situation in the UK.
The outlook for the UK economy overall is quite positive. The pace of the vaccination programme means that the UK is on target to follow the Government’s roadmap for the easing of restrictions (for England); this means that the economic recovery is ahead of that of much of Europe and on a par with the USA which is boosted by additional fiscal stimuli.
The UK is likely to avoid a double-dip recession with the economy still growing at the end of 2020. Therefore, while Q1-2021 is almost inevitably going to be negative (we will get the first estimate of this in a couple of weeks time), we won’t get the two consecutive quarters of non-positive growth needed to define a recession so that will only apply to Q1 & Q2 of 2020. Some European economies and the EU and Euro-zone groups are, however, likely to see a double-dip having seen a quarter-on-quarter fall in GDP in the final period of 2020 (and probably then again in Q1-21).
Moving on to the industrial picture and the UK is doing less well, at least in terms of the pace of recovery. Analysis by Oxford Economics of the level of industrial production compared to the 4th quarter of 2019 (before the pandemic struck) shows most of the Asian economies (Japan is an exception) and the US are back to this level by Q1-2021 and the European economies achieve this during the current year; however, industrial production (which is mostly but not only manufacturing output) in the UK is still below the pre-pandemic level at the end of 2022 (the end of the forecast horizon for this analysis).
While our forecasts for the UK market are for machine tools and cutting tools as these are the two areas where we have reliable data series, they also act as a proxy for other aspects of the manufacturing technology sector which is driven by the same customers in most cases. In addition, machine tool demand is dependent mainly on investment activity, while the cutting tool market is more closely related to output and this can be related to other product areas within our industry. In looking at these different drivers, we explored some of the data issues for investment which have led to a moderation of the forecast growth for 2021 while there have been more nuanced adjustments to the output forecasts affecting particular industries either because of a better than expected outcome in 2020 (which reduces the growth rate for 2021 because of the base effect in the comparison) or because of external factors which have changed - for example, the continued weakness of global air travel which is affecting the aerospace industry.
The presentation concluded with a look at our latest forecasts - you can read more about that in our previous article which you can find at https://www.mta.org.uk/resources/new-mta-forecasts-2.
You can download the slides and view this presentation on the MTA web-site at https://www.mta.org.uk/members-area/mta-forecast-documents - note that you will need to login to access this as this is a members’ only service. You can also find the documents from the latest round of the forecasts; in particular, since we sent the MTA UK Forecast Update document out, we have discovered that the wrong table was included in the document for the sectoral outlook (page 13 of the file). This has been corrected and is in the full file on the MTA website.