Factory activity loses steam ahead of second lockdown

Lockdown 2.0 is expected to further weigh on manufacturers’ recovery after growth slows between September and October

Factories’ recovery lost more momentum last month, especially among consumer goods makers, according to a closely watched survey.

The IHS Markit/CIPS UK purchasing managers’ index (PMI) fell from September’s 54.1 to 53.7 in October. This was slightly higher than a preliminary reading and above the 50 mark that separates contraction from growth.

European clients stockpiling ahead of a potential no-deal Brexit at the end of the year, and increased demand from China and the US as their economies recovered, boosted exports.

However, consumer goods firms experienced falls in both output and new business for the first time since they started recovering from the Covid-19 shock earlier this year because they are more sensitive to short-term changes in the economy.

Britain’s manufacturing sector contributes £191bn to the economy and supports 2.7m jobs, according to Make UK, which represents manufacturers.

The survey was conducted Oct 12-27 – before the Government’s announcement on Saturday of a second national lockdown, which starts on Thursday.

Simon Jonsson, head of industrial products at KPMG UK, cautioned that “a lot of manufacturing businesses need to consider what demand will be for their products over the next few months” as a result of the new measures.

It came as a survey of 200 manufacturers by Lloyds Bank found the pandemic has hit more than two-thirds of large manufacturers’ revenues, with more than half responding by investing in automation to make their businesses more efficient.

Factory activity across the eurozone’s biggest economies grew in October, but was likewise expected to contract in the weeks ahead after restrictions were tightened.

In Germany, the PMI rose from 56.4 in September to 58.2 in October; in France, it climbed from 51.2 in September to 51.3 in October; in Italy, it increased from 53.2 in September to 53.8 in October; and in Spain it went from 50.8 in September to 52.5 in October.

Phil Smith, principal economist at IHS Markit, warned that the data “come amid rising numbers of coronavirus cases in Europe, and the increased threat of renewed disruption to supply and demand that comes with it”.

The German Chancellor Angela Merkel last week announced an emergency month-long lockdown that includes the closure of restaurants, gyms and theatres.

French President Emmanuel Macron announced a new nationwide lockdown last Wednesday, initially slated to run until Dec 1, although it could be extended.