The number of UK sectors reporting output growth doubled in February, led by a strong performance from technology equipment manufacturers, according to the latest Lloyds Bank UK Recovery Tracker.
The Tracker, working with IHS Markit, provides unique insight into the shape and pace of the UK’s recovery from the disruption caused by COVID-19.
Recovery signs in February
The output of six of the 14 UK sectors monitored by the Tracker rose in February, up from three in January, with technology equipment manufacturers (58.2) recording the strongest growth. A reading above 50 signals output is rising, while a reading below 50 indicates output is contracting.
Accounting for their robust performance, technology equipment manufacturers, which include producers of specialist parts in smart devices, motor vehicles, computers and industrial machinery, cited higher international demand for components. As a result, it was the only UK sector monitored by the Tracker to register a rise in new export orders during February.
Firms within the sector also cited new orders from global technology companies diversifying their supply chains and investing in research and development to improve resilience following COVID-19.
The output growth of food and drink manufacturers (53.7), the second-best performing sector during February, was driven by continuing strong demand from domestic retailers, while the healthcare (52.6) sector benefitted from demand for goods and services that support the UK’s COVID-19 vaccine programme.
Despite the increase in UK sectors registering output growth during February, the stringency of the UK’s lockdown restrictions in comparison to other major economies meant only the technology equipment and food and drink manufacturing sectors were ahead of their global counterparts during February, down from three sectors in January.
However, the gap between world (53.2) and UK PMI output indices (49.6) narrowed in February suggesting many UK firms have become more resilient to the impact of lockdown.
Public impact of falling exports and supply chain disruption on manufacturers intensifies
The output of automotive (49.1), household products (46.8), metals and mining (45.5) and chemicals (45.4) manufacturers fell in February as businesses reported longer lead times due to record shortages of raw materials and shipping containers. Six of the seven manufacturing sectors monitored by the Tracker recorded a fall in new export orders during February. Chemicals, automotive and food and drink manufacturers all cited reluctance from overseas customers to place new orders amid post-Brexit trade frictions with the European Union.
Meanwhile, the proportion of manufacturers reporting shortages of raw materials, including timber, packaging and polymers, was the highest so far recorded by the Tracker. The number of firms affected by a lack of transport capacity was also nearly 10 times higher than in October 2020. February’s scarcity was linked to shipping container shortages and delays at UK ports.
This supply chain disruption fuelled the fastest rate of manufacturing sector input cost inflation since January 2017, when sterling exchange rate depreciation against the US dollar led to a spike in the price of imported materials to the UK.
Jeavon Lolay, Head of Economics and Market Insight, Lloyds Bank Commercial Banking, said: “It is encouraging to see a rising number of UK sectors register output growth in February, despite the challenging lockdown conditions. It highlights both strong global demand and how well UK businesses and households have adapted to tough restrictions on mobility. It suggests that a modest rise in monthly UK GDP is possible in February, after the smaller-than-expected decline in January.
“However, February’s data also shows that the UK’s economic recovery from COVID-19 is tied to more than just the stringency of lockdown restrictions, which disproportionately affect consumer-facing services sectors. Manufacturers are facing into a more challenging export environment and the global supply chain disruption currently holding many firms back looks set to continue.”
Scott Barton, Managing Director, Corporate and Institutional Coverage, Lloyds Bank Commercial Banking, added: “The performance of technology equipment manufacturers during February highlights our position as a world leader in innovation, and UK firms’ appetite to take advantage of new opportunities for growth during another challenging year.
“Every step towards recovery from COVID-19 is an important one, and while the UK remained behind the global benchmark during February, the picture should continue to improve as the vaccine rollout progresses and we take further steps in the government’s roadmap out of lockdown.”