The public health emergency caused by the outbreak of coronavirus disease 2019 (COVID-19) caused substantial disruption across the UK manufacturing sector and its supply chains in April.
Manufacturing production, new orders and employment all contracted at the fastest rates in the 28-year survey history, while vendor lead times lengthened to the greatest extent so far.
The global pandemic also hit overseas demand, leading to a series-record drop in new export business.
The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) fell to a record low of 32.6 in April, down from 47.8 in March. The fall in the Manufacturing PMI (which is a composite of five indices) was softened by a comparatively modest reduction in stocks of purchases and record lengthening of vendor lead times (which has an inverse contribution to the PMI level). Survey data were collected between 7-27 April. Response levels were similar to those observed before the outbreak.
This has been confirmed by Make UK, the manufacturers’ organisation. It said Britain’s manufacturers have experienced a collapse in demand as the impact of the global lockdown due to coronavirus hammers home with a warning that conditions are unlikely to return to anywhere near normal for some time.
Publishing its first Covid 19 Manufacturing Monitor, Make UK also warned that the extent of the fall is likely to mean that the recent Office for Budget Responsibility (OBR) forecast of a 55% fall in manufacturing output in the second quarter is likely to be an underestimate as things stand.
Make UK added that the extent of furloughing within the sector and, the prospect that a significant number of companies will not take staff off furlough until they see orders increase, means the Government will have to consider extending some form of job retention plan beyond the end of June when the current scheme is due to finish.
Make UK Chief Executive, Stephen Phipson, said: “While many manufacturers continue to operate and supply our food, vital medical equipment and PPE, there is no disguising that for the sector overall these are deeply worrying times. The extent of the collapse in demand is such it means that the recent OBR forecast could be an underestimate unless there is a quite remarkable turnaround which, to be frank, just isn’t going to happen.
“All the indications at the moment indicate that, even if a gradual easing of lockdowns begins soon, the impact of this shock will continue to hit companies and livelihoods for some time to come. As such, Government may need to be flexible with its future support schemes in the same way that industry is going to have to be flexible with its recovery plans. There will be a medium term need for government to support a recapitalisation effort for businesses who will struggle to repay debt incurred during lockdown."
According to the Monitor, 87% of companies are continuing to operate in some form. However over three quarters (77.5%) have seen a decrease in sales whilst four fifths (80.6%) have seen a decrease in orders. For almost a quarter of companies (22.1%) the fall in orders has been between 26% and 50% whilst for one in five companies (19%) the fall has been between 50% and 75%.
As with other sectors of the economy companies have made significant use of the Government’s Job Retention Scheme in order to retain key staff. Almost a fifth of companies (19%) have furloughed between 11% and 25% of employees whilst 15.9% have furloughed between 26% and 50% of staff. Over a fifth (22.5%) say they intend to furlough more staff in the next fortnight.
The survey also shows that taking staff off furlough is likely to be a prolonged process with almost a third (32.9%) saying they will wait to see orders increase whilst over a quarter (25.3%) say it will be a phased process. As such Make UK believes the Job Retention Scheme will need to be extended and be more flexible to support a recovery
The IHS Markit/CIPS survey records contractions in output, new orders, employment and new export business were felt across the manufacturing sector, with series-record declines in each of these variables seen across the consumer, intermediate and investment goods sub-industries.
Companies linked the declines to the consequences of the COVID-19 outbreak, particularly regarding company closures, weak domestic and global demand and labour shortages (following job losses and staff furloughs).
Rob Dobson, Director at IHS Markit, which compiles the survey, said: “UK manufacturing suffered its worst month in recent history in April, as output, orders books and employment all fell at rates far surpassing anything seen in the PMI survey's 28-year history.
“Huge swathes of industry were hit hard by company closures, weak global demand, lockdowns and social distancing measures in response to COVID-19. The only pockets of growth were seen at firms making medical and food products.
“Supply-chains also felt the full force of the outbreak as average supplier delays rose to the greatest extent seen since PMI records began. International goods flows were constrained by delays in air freight, shipping and border control issues, and staff shortages often limited production.
“Inflationary pressures are remaining in check at the moment, linked to weak demand and collapsing global oil prices, but persistent shortages could start to drive some prices higher, notably for food.
"The outstanding question remains how long the current restrictions will need to remain in place, and which sectors can start to safely reopen. The pressure is mounting, as the longer the global economy remains in lockdown the greater the cost to industry will grow, and the greater the likelihood that more jobs will be cut.”
