Sunday, May 09, 2021
The makers are on the march - but can it last this time?
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

It is not often I get a chance to say this, but manufacturing industry is on a roll. Surveys show that manufacturing is bouncing strongly. The numbers for manufacturing are more positive than for a very long time, and this is not just a UK phenomenon.

The purchasing managers’ index (PMI) for manufacturing came in a few days ago. Levels above 50 indicate expansion, and vice versa. At 60.9 in April, it was at a 27-year high, beaten only once in the survey’s history, in July 1994. There was, according to IHS Markit, which produces the survey, “a further acceleration in the rate of expansion of the UK manufacturing sector”, with growth in output and new orders at their best for years and a “solid” increase in employment.

The service sector also showed a strong recovery last month, its PMI rising to 61, the best for 7½ years, but we are more used to it being upbeat in our service-dominated economy.

Manufacturing hopes were supported by other evidence. The CBI’s quarterly industrial trends survey showed that manufacturing optimism in the three months to April increased at its fastest pace since April 1973. That was not unsurprising, given the deep gloom into which we were all thrust in January, but the survey also showed that investment intentions for plant and machinery were at their strongest since July 1997.

That looked like a rapid endorsement of Rishi Sunak’s policy of trying to ensure that investment plays its part in the post-pandemic recovery. The chancellor’s innovative budget announcement of a 130 per cent “super deduction” allowance for investment for the next two years is making a difference, though manufacturers would not be investing if they were not confident.

A separate CBI survey for small and medium-sized manufacturers showed optimism rising at its strongest rate for seven years and predictions for output growth at their best since 1988.

Things are looking up in the beleaguered motor industry. Though the vast majority of cars sold in the UK are imported, the industry will take comfort from the fact that new car registrations so far this year are up 16 per cent on last year’s depressed levels. Fleet buyers are contributing most to the increase, so the industry will be waiting to see how much of their savings private buyers are prepared to splash on a new motor.

Separate figures from the Society of Motor Manufacturers and Traders (SMMT) showed strong year-on-year rises in car, commercial vehicle and engine production, though car production in the first quarter was down on a year earlier.

Manufacturing revival is not, as I say, just a UK phenomenon. The eurozone manufacturing PMI last month was even stronger, at 62.9. European lockdowns have pegged back service sector activity in many countries but have had only a marginal impact on manufacturing. The Netherlands is at a record high of 67.2, Germany on 66.4.

Globally, manufacturing output is rising at its strongest rate since April 2010, when it was recovering from the financial crisis. The makers, it seems, are on the march again.

Can it last? As with all readings for the economy this year, a pinch of salt is required. Economies are bouncing back from their worst downturn in decades – in the UK’s case in more than three centuries – and the comparison will tend to flatter. When you have been through something as dramatic as the lockdowns, restrictions and collapse in output and sales of the past 14 months, a return to something like normality can seem like nirvana.

And, while many sectors are still subject to restrictions, which are gradually being lifted, this has not been the case for manufacturing. In many countries, starting China, industrial output is well above pre-pandemic levels.

In the UK, industry was never required to shut down and the instruction to work from home where possible was never practical for many people working in factories. Thus, while on the latest official figures the service sector was 8.8 per cent below February 2020, pre-pandemic levels, the gap for manufacturing was much smaller at 4.2 per cent and should be made up very soon.

I am aware that writing something positive about manufacturing, particularly UK manufacturing, carries a serious risk of jinxing it. MakeUK, which represents manufacturers, is not yet putting the champagne on ice, let alone breaking it open.

Stephen Phipson, its chief executive, warns that a strong UK manufacturing sector needs a world-class steel industry. Everybody knows the travails currently being suffered by Britain’s steel industry and the concerns about its viability.

MakeUK’s prognosis for the industry is for only a partial recovery this year. It predicts 3.9 per cent growth in 2021 and 3 per cent in 2022, following 2020’s 9.9 per cent slump. It welcomed the strong bounce in the PMI but noted that industry faces “growing challenges around the supply-chain and soaring input prices”.

Its caution is justified by experience. Potential revivals in manufacturing have come and gone but have never been sustained. If we take the 25 years to 2019, before the pandemic struck, the economy as a whole grew by 68 per cent. Within that, however, manufacturing grew by just 3 per cent, so growth was dominated by the service sector. Last year’s slump, which one hopes will be made up very soon, saw manufacturing output reduced to its lowest level since 1992, two recessions ago.

There are also the elephants in the room, as highlighted by IHS Markit and the Chartered Institute of Purchasing and Supply, in their commentary on the PMI. As CIPS said: “The still significant delays in the delivery of goods due to the pandemic, Brexit and the Suez blockage in some sectors hampered further progress on two counts.

“The slow delivery of goods motivated supply chain managers to increase their order numbers and try to build up recently unravelled stocks leading to further hold-ups, and the injection of more inflationary pressures into the economy. Price rises were amongst the highest in the last three decades and shortages in some essential materials intensified.”

We should not look a gift horse in the mouth. The revival of manufacturing we are now seeing is good news for a government seeking to level up. Wales has the biggest proportion of GDP in manufacturing, or did before the pandemic, 17 per cent, followed by the East Midlands, West Midlands, North East and North West.

The most likely outcome, in the UK and to a lesser extent globally, is that manufacturing is just the first to revive after the pandemic, and the service sector will quickly make up lost ground, as it appears to be already starting to do. But it would be good if this could give way to something more sustained. I do not yet see much of a strategy for achieving that.