UK factory output jumps but job losses continue
UK factory output rose at its fastest rate for more than six years as activity picked up after the Covid-19 lockdown but manufacturers continued to cut jobs, a survey showed.
The IHS Markit/CIPS purchasing managers' index rose to a 30-month high of 55.2 in August, up from 53.3 in July. The score was just short of an earlier "flash" reading. A score of more than 50 indicates expansion.
Manufacturing production rose at the fastest pace since May 2014 with solid expansion across the sector. Intermediate goods had the strongest growth and investment goods were weakest.
New orders showed the biggest increase since November 2017, fuelled mainly by domestic demand though new export orders rose slightly for the first time in 10 months. However, there was no benefit for employment in the sector.
Factories cut jobs for the seventh month running in one of the steepest declines in the past 11 years. Job cuts hit all parts of the sector and firms of all sizes. Many economists predict big job losses as government support ends, with the potential to undo much of the rebound in activity spurred by the reopening of businesses.
Rob Dobson, a director at IHS Markit, said: “The recovery of the UK manufacturing sector gathered pace in August. However, companies report that the current bounce is mainly driven by the restarting of manufacturers’ operations and reopening of clients as Covid-19 restrictions continue to be relaxed.
"The downturn in employment may have further to run as the government’s furlough scheme is phased out unless demand rises sharply. Given the fragility of demand and uncertain outlook both in terms of Covid-19 and Brexit, policymakers may struggle to prevent a 'surge-then-slump' scenario from developing.”
Business sentiment about future output was positive but stocks of purchases and finished goods fell as companies sought to control costs and complete business delayed by the lockdown. Input price inflation strengthened to a 20-month high caused by shortages of some materials, supply chain disruption and the weak pound.