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UK manufacturing shows hint of recovery

Britains manufacturing sector has shown signs of recovering from the worst damage inflicted during the coronavirus outbreak, after a survey showed that factory output had declined at a slower pace in May than a month earlier.

The monthly snapshot from IHS Markit and the Chartered Institute of Procurement and Supply, which is closely watched by the Treasury for early warning signals about the economy, indicated that the downturn in the manufacturing sector eased last month as lockdown measures were gradually lifted.

The manufacturing purchasing managers index (PMI) – compiled from surveys of business activity – rose to 40.7 in May from 32.6 a month earlier, when harsh restrictions brought Britains economy to an effective standstill.

However, the index remained below the 50 mark that separates economic growth from contraction, and still represented one of the worst months on record for factory output.

According to the latest figures, manufacturers continued to feel the impact from the coronavirus pandemic as the economy struggled to build momentum to escape the deepest recession in living memory.

Pockets of growth were generally linked to healthcare-related or personal protective equipment products as factories increased production to respond to the global health emergency.

Despite the continued stress facing the industry, IHS Markit said the worst of the downturn had probably passed, as lockdown measures were gradually being lifted and factories were starting to reopen for business.

Stock markets around the world rose on Monday amid promising indicators of economic activity from other major nations, including figures revealing an unexpected return to growth for Chinese factory production in May after three months of contraction.

PMI readings for the US and eurozone also rose from record low levels recorded in March and April, indicating that the moment of maximum damage for the world economy might now have passed.

The FTSE 100 closed up 1.5% on Monday at 6,166. Markets across Europe also recorded fresh gains, while Wall Street was higher in early afternoon trading.

Despite the positive signals, economists and industry groups warned that the recovery could take longer than first expected and that the risk of lasting damage was rising. The threat of a second wave of Covid-19 infections, renewed lockdown measures or government emergency financial support being removed too soon could also rapidly derail the rebound.

Rob Dobson, a director of IHS Markit, said: “Changes to working practices, uncertainty about how long the Covid-19 restrictions may be in place for, weak demand and Brexit worries all suggest the UK is set for a drawn-out economic recovery.

“This will make the new normal one of the toughest recovery environments many manufacturers will ever have to face.”

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