In December, the UK economy was held back by supply chain disruption and staff shortages.
Amid pressure from Covid and Brexit, Britain’s manufacturers have suffered a drop in export demand while supply chain disruption and staff shortages held back the economy in December, according to new market data.
Last month, Covid restrictions and Brexit weighing on orders and pushing up costs limited growth in UK factory output as shown by the latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply (CIPS).
For the fourth month in a row, inflows of new work from overseas dropped, according to the survey of 650 manufacturers, which is tracked by the government and the Bank of England for early warning signs from the economy.
Manufacturers said logistics issues, Brexit difficulties and the possibility of further pandemic restrictions at home and overseas had damaged export demand at the end of the year at the same time firms reported continued growth at the end of last year and a slight easing of supply chain delays.
Britain’s exporters are on track to be the slowest among big European economies to recover from Covid-19, owing to new trade restrictions since leaving the EU and the impact of the pandemic according to research by Euler Hermes.
With data expected to show that Germany and Italy have already recovered in 2021 and other nations will do in 2022, the UK exports will not recover to pre-pandemic levels until 2023, leaving the UK lagging European counterparts, according to the Paris-based trade credit insurer forecasts.
Despite a rise in demand for manufactured goods across advanced economies as consumers turn to purchase physical products while pandemic restrictions limit appetite for services, the forecast still comes. Ana Boata, the head of economic research at Euler Hermes, said:
“Our forecasts show that Brexiting in times of Covid-19 has hindered exporters’ capacity to benefit from the strong upswing in demand that lockdown has presented.”
She said that while the Omicron coronavirus variant would add to severe uncertainty facing firms, the further disruption would be brought by fresh post-Brexit border controls on UK imports at the start of 2022. She added:
“British exporters have been tasked with sailing increasingly perilous trade waters in recent years – another 12 months of headwinds could be enough to sink many.”
During supply chain disruption, UK-based firms suffered from rising costs for freight, shipping, and air transportation, as per the latest snapshot from IHS Markit/Cips.
At the end of last year, however, many companies also recorded further growth in production, new orders, and employment. As firms battled to meet improved demand, rising backlogs of work, and efforts to address staff shortages, hiring increased for the 12th successive month in a row in December.
Last month, the IHS Markit/Cips manufacturing purchasing managers’ index (PMI) rose to 57.9, little changed from a three-month high of 58.1 in November. A mark above 50 indicates growth as opposed to contraction.
In addition to companies reporting a sharp increase in costs for chemicals, electronics, energy, food products, metals, timber, and wood, inflationary pressures remained high. Experts warned headwinds for UK factory output and exports remained even though firms were optimistic that disruption linked to Covid and Brexit should gradually fade throughout 2022.
Dave Atkinson, a regional director at Lloyds Bank, said:
“There are tentative signs as the pace of output growth builds that some supply chain pressures, which have dragged on the sector for months, are starting to ease. But manufacturers expect supply headaches to persist throughout 2022, with chip shortages, in particular, likely to be prevalent even into next year.”