UK economy shows signs of life, despite headwinds from Covid-19 and Brexit

Economic activity in the UK picked up slightly at the end of 2020, despite the evident headwinds from Covid-19 and Brexit, led by an expansion in factory sector activity, the results of two closely-followed surveys revealed.

The slowdown in UK services also abated in December, but by less than hoped for "largely due to ongoing coronavirus disease 2019 (COVID-19) restrictions on hospitality, leisure and travel businesses."

Consultancy IHS Markit's so-called composite Purchasing Managers' Index rose to a reading of 50.7 in December following a print of 49.0 for November (consensus: 51.3).

The composite PMI includes results from the separate factory and services sectors surveys with the 50.0 point level marking the threshold between a contraction and expansion in the sector.

The factory PMI actually beat markets' expectations, despite slipping from 56.7 to 55.3 (consensus: 54.8), while that for services improved from 47.6 to 49.9 (consensus: 50.4).

As well, the factory PMI revealed "severe" pressure on manufacturing supply chains due to delays in freight resulting from congestion at UK ports, IHS Markit said.

Approximately 45% of manufacturing firms reported increased wait times from suppliers.

"The lengthening of lead times in December was the third-steepest since the survey began in 1992, exceeded only by those seen amid COVID-19 shutdowns in April and May," the survey compiler added.

"Shortages of critical inputs, alongside pressure on capacity following forward-purchasing by clients ahead of Brexit, contributed to the sharpest rise in backlogs of work across the manufacturing sector since May 2010."

Commenting on Wednesday's services, Chris Williamson, chief business economist at IHS Markit, said: "The recovery lacked vigour, however, as the service sector remained under particular strain, contracting marginally again as ongoing social distancing measures due to tiered lockdowns continued to hit many parts of the economy.

"The manufacturing and transport sector improvements were linked to reviving global trade and a temporary boost from Brexit-related stockpiling, which reportedly buoyed order books and exports during the month."