MAKE UK - Brexit Preparedness Webinars
Make UK have recently released a number of webinars on Brexit preparedness. These are technical presentations on key issues for businesses and some of the content is similar to the Brexit Preparedness roadshows we hosted last month:
Customs Declarations: https://www.youtube.com/watch?v=bsLvvnqiPIc
People and Migration: https://www.youtube.com/watch?v=cF_6Ci6fYic&feature=youtu.be
Separately, Make UK have re-started publication of their monthly economics bulletin. Please find the November edition below
Economic Monthly Brief
November 2019
Insights into the month’s economic news
Round UP
PMI improves but maintains contraction
The UK manufacturing PMI has risen to 49.6 in October, up from last month’s result of 48.3. While October’s score does mark a 6-month high for the index, it remains below 50, indicating a continued contraction for the manufacturing sector. Downturns in output, new orders and employment have all contributed to this result, and this month’s PMI would be even lower if it was not for stockpiling activities that began in the run-up to the October 31st Brexit deadline.
Stockpiling did not reach the same levels that were observed in the first quarter of 2019, which caused a significant artificial boom in the PMI at the time. Seemingly never-ending uncertainties surrounding Brexit, now compounded by electoral uncertainty too, has weighed heavily on the manufacturing sector. Businesses have scaled back output due to a lack of new orders, particularly from the domestic market.
The Index of Manufacturing remains below par
The Index of Manufacturing remains below its pre-economic downturn peak. This month’s figures published by the Office for National Statistics (ONS) show that output from the manufacturing sector is down by 1.1% in the 3 months ending August 2019, compared to the previous 3 months. This is the fourth consecutive decline in The Index of Manufacturing, a downward trend that now spans a 12 month period.
The majority of manufacturing sub-sectors contributed negatively to this result, with 11 of the 13 subsectors turning out a poor performance. Food, beverages and tobacco led the decline falling by 2%, having a significant impact on the IoM as the food & drink sub-sector is the largest. Computer, electronic and optical products followed, falling by 3.5%. The transport equipment sector combats the decline with a rise of 5.8% predominately fuelled by growth in the motor vehicles sector that occurred in June 2019.
CPI unchanged from August
The latest ONS figures show that the Consumer Prices Index (CPI) for September 2019 remains unchanged from August at 1.7% Although the aggregate figure remains the same, there was some internal movement in the composition of the CPI.
The largest downward contributions came from motor fuels, second-hand cars and electricity, gas and other fuels. These were offset by upward trends in furniture, household appliances, hotel stays, recreation and culture items.
Manufacturing jobs under attack
October marks the seventh consecutive month where job losses have been observed in the manufacturing industry. Furthermore, the rate of decline has been at its fastest for the past decade. Poor sales and low confidence both heavily contributed to the loss of these jobs, and prevented the replacement of leavers and redundancies.
Hiring freezes have been taking place as manufacturers are uncertain of their outlook. Sparse order books and diminishing capital reserves have left manufacturers with a low propensity to invest in either new staff or capital, resulting in the loss of staff in attempts to balance the books. Many businesses cite the uncertainty caused by Brexit delays as the reason for their lack of investments.
Economist’s Comment
This month’s PMI result being in contractionary territory yet again will be of little surprise for those in the manufacturing industry. Although a result of 49.6 would indicate only a minor contraction (50+ is expansion), the reality of this month’s PMI is more damning than it seems on the surface. High input purchasing and the build-up of safety stocks have offset the negative effects on orders, output and employment, running up inventory reserves to a 6 month high.
These positive offsetting effects on the PMI are not only temporary, but they are also happening for the wrong reasons. In the run-up to the October 31st Brexit deadline, as was similar to the activity observed before the previous Brexit ‘deadline’ in the first quarter, manufacturers were panic buying inputs and undertaking huge stockpiles as a means of insuring their business’ continuance in case of a supply chain failure. If we were to discount the artificial boost to PMI from these stockpiling activities, the result would be assuredly worse, and sadly a truer to life representation of the situation UK manufacturing is currently facing.
Some relief was offered to manufacturers in the form of diminished price pressures. Input prices stayed unchanged for the month, the first time that they haven’t increased in over three and a half years. Manufacturers have had to battle with rising input costs as the Sterling’s performance has faltered.
Business confidence is at a 3 month high, however, it remains at some of the lowest levels since confidence data records began in 2012. Unfortunately, as is becoming a trend at the moment, we are not particularly surprised by this owing to the seemingly endless turmoil Brexit uncertainty is wreaking on the sector.
Business investment is in a particularly poor state, as it is not only capital investment has been paralysed but now also labour investment has been put on ice. Jobs are being lost in the industry at their fastest rate in the past decade while hiring freezes have been put in place, indicating that manufacturers are desperately trying to cut costs, and fast. With yet another extension of the Brexit deadline, businesses have learned that a conclusion to their uncertainty is likely quite a way off. Their paralysis is evident in their lack of business spending and the sector is longing to get back to normal business patterns.
Data Summary
UK GDP growth 2019 Q2 -0.2% q-on-q ↓
UK Manufacturing PMI (Index) 2019 Oct 49.6 index ↑
UK Services PMI (Index) 2019 Oct 49.5 index ↓
Eurozone Manufacturing PMI (Index) 2019 Oct 45.9 index ↑
Make UK Annual GDP Forecast 2019 1.2% y-on-y ↑
Make UK Pay Settlements 2019 May 2.6% 3m-on-3m ↔
Average earnings – manufacturing 2019 Oct 2.5% 3m-on-3m ↑
Average earnings – whole economy 2019 Oct 3.8% 3m-on-3m ↔
UK ILO Unemployment rate 2019 Oct 3.9% % ↑
CPI inflation 2019 Oct 1.7% y-on-y ↔
RPI inflation 2019 Oct 2.4% y-on-y ↓
UK Consumer Confidence Index 2019 Oct -14 index ↓
Index of Production 2019 Aug -0.6% m-on-m ↓
Index of Manufacturing 2019 Aug -0.7% m-on-m ↓
UK Trade - Goods balance (£billion) 2019 Aug -9.8 level ↓
Business Investment growth 2019 Q2 -0.4% q-on-q ↔
Manufacturing Investment growth 2019 Q2 -22.5% q-on-q ↓
UK Debt to GDP level 2018 Q4 86.7% GDP % ↔
UK Current Account Balance % of GDP 2019 Q2 -4.6% GDP % ↔
Sources: ONS, Markit, GfK NOP and Make UK