U.S. Markets

UK factory growth slows as COVID and Brexit combine -IHS Markit

LONDON (Reuters) - British manufacturers suffered a double hit last month as COVID-19 disruption to global shipping combined with new trade barriers with the European Union, according to a survey published on Monday.

FILE PHOTO: Employees Joe Don (L) and Darren Lowarson give a Rolls Royce Ghost its final finish polish at the Rolls Royce Motor Cars factory at Goodwood near Chichester in southern England April 24, 2013. REUTERS/Luke MacGregor

Separate data from the Bank of England showed a record fall in borrowing by consumers in December, potentially paving the way for a spending rebound once the pandemic eases.

But for now the data paints a picture of a British economy that is struggling in early 2021 as finance minister Rishi Sunak considers whether to extend his emergency support programmes.

Data firm IHS Markit said its monthly survey of the factory sector showed a hit to new export orders, signs of supply chain problems and inflation pressure.

Fhaheen Khan, an economist at Make UK, a manufacturing lobby group, said the worst of the supply chain challenges were yet to come as many manufacturers were still working down stockpiles.

“The impact of both COVID-19 and leaving the EU could linger for many years to come,” he said.

The final IHS Markit/CIPS manufacturing Purchasing Managers’ Index fell to 54.1, below the level in the euro zone and down from a three-year high of 57.5 in December, when factories rushed to beat problems when Britain’s new trade relationship with the EU began on Jan. 1.

Smaller manufacturers were the hardest hit.

Britain’s fast COVID-19 vaccination programme and progress by companies in adapting to Brexit held out the prospect of a pick-up in the pace of growth but there was no swift end to the headwinds in sight, Rob Dobson, director at IHS Markit, said.

Input price inflation rose to a four-year high, reflecting raw material shortages and transport delays, leading to the steepest inflation of selling prices for 28 months.

Monday’s data from the BoE showed unsecured lending to consumers was 7.5% lower in December than a year earlier, the biggest decline since monthly records began in 1994.

“With households paying down debt now, they should be in a good position to start spending again once the COVID-19 restrictions are eventually lifted,” Ruth Gregory, an economist with Capital Economics, said.

But Samuel Tombs at Pantheon Macroeconomics said many households were likely to buy foreign holidays and imported items such as new cars which would not boost economic output.

The BoE data also showed mortgage approvals slipped back slightly in December but remained close to a 13 year-high.

Tombs said the housing market rebound would lose steam before the scheduled March 31 expiry of Sunak’s tax cut for property purchases.

Reporting by William Schomberg; Editing by Toby Chopra