Manufacturers Outperform Other Sectors, Expecting Growth in 2021

Manufacturers helped push the UK’s economic recovery ahead of the global benchmark in December, according to the latest Lloyds Bank UK Recovery Tracker. The Tracker, compiled working with IHS Markit, provides unique insight into the shape and pace of the UK’s recovery following the huge disruption caused by Covid-19. The latest data was compiled between 4th and 21st December 2020, ahead of the introduction of tighter lockdown restrictions at the end of the month, which should impact January’s results in certain sectors such as hospitality and tourism.

Eight of the fourteen UK sectors monitored by the Tracker were ahead of the global index in December, up from six in November. Firms in the manufacturing industry, which posted a seven-month run of growth and helped slow falling UK GDP in November, were the biggest contributors to output growth in the final month of the year.

A spike in demand from overseas buyers ahead of the Brexit trade deadline pushed the output of the chemicals (63.2), household products (57.1) and beverages and food manufacturing (54.6) sectors ahead of their global counterparts in December. A reading above 50 signals output is rising, while a reading below 50 indicates output is contracting.

Meanwhile, transportation (56.9) outstripped global performance by the largest margin in December. This was the sector’s first rise in activity since July and its fastest growth for nearly two-and-a-half years. The performance was driven by the lifting of national lockdown measures in early December and an end-of-year spike in demand for logistics services ahead of the Brexit trade deadline.

Vaccine rollout drives UK businesses 2021 growth expectations

Looking at a measure of expected output volumes, 11 of the fourteen sectors monitored by the Tracker anticipated stronger output growth than their global peers over the next 12 months during December, as the UK’s Covid-19 vaccination programme got underway.

The UK’s software services sector’s expectations for growth were strongest of all sectors and well ahead of the rest of the world in December, with a reading of 81.5 against the global benchmark of 70.9. Accounting for the positive outlook, providers anticipate increased corporate investment in digital services to continue in 2021. A reading above 50 signals that respondents expect output to rise in the next 12 months, while a reading below 50 indicates output is expected to contract.

The industrial goods sector (75.6) was among those furthest ahead of the global benchmark (66.2) in December. The expectation of increased investment in industrial development and a positive outlook for the UK construction industry was behind the sector’s optimism for the next 12 months.

Chemicals (64.7), transportation (62) and real estate (58) were the only UK sectors monitored by the Tracker with 2021 growth expectations behind the global benchmark in December.

Chemicals producers commented on a slowdown in demand after sales to overseas buyers spiked ahead of the agreement of a trade deal with the European Union. Transport and real estate businesses anticipated another uncertain year for commercial property rentals and public transport, with many firms indicating employees will continue to work from home for a large proportion of 2021.

UK manufacturers’ growth expectations for 2021 weakened by rising costs

While still well above the 50 mark that signals output is expected to rise over the next 12 months, the growth expectations of four UK manufacturing sectors weakened during December – chemicals (64.7 in December v 70 in November), metals and mining (69 vs 75), beverages and food (72.2 vs 77.4) and automobiles and auto parts (73.5 vs 73.7).

Signs of inflationary pressures across the UK economy contributed to these sectors’ weaker output expectations for the next 12 months. Supply chain delays and the imbalance of container freight activity during 2020 led to a steep rise in shipping costs during December. Global raw material shortages also meant that UK manufacturers faced the sharpest rise in input prices for two-and-a-half years. Both factors are expected to increase prices charged by UK goods producers, which could negatively impact the competitiveness of domestic manufacturers in overseas markets during 2021.