UK Recovery falls behind global benchmark in January but vaccine rollout drives positive Growth Prospects
The pace of the UK’s economic recovery fell behind the global benchmark in January, as the vaccine rollout drove the majority of sectors growth expectations ahead of their international peers, according to the latest Lloyds Bank UK Recovery Tracker.
The Tracker, working with IHS Markit, provides unique insight into the shape and pace of the UK’s recovery from the disruption caused by Covid-19.
UK sectors lose ground in global recovery
The output of 11 of the 14 UK sectors monitored by the Tracker fell in January, as the third national lockdown came into force. Consumer-facing services sectors most acutely affected by restrictions on trade, including tourism and recreation (19.3) and transport (31.5), saw the sharpest decline. A reading above 50 signals output is rising, while a reading below 50 indicates output is contracting.
Only the food and drink (59.5), metals and mining (58.2) and industrial goods (57.8) manufacturing sectors recorded rising output in January. They were also the only UK sectors ahead of the global benchmark, five sectors fewer than December, leaving the UK’s pace of economic recovery behind the rest of the world at the start of 2021.
UK food and drink manufacturers were furthest ahead of the global benchmark during January. Accounting for their performance, producers cited an increase in orders from domestic supermarkets as global supply chain disruption delayed the arrival of food and drink imports to the UK. However, some firms also reported that lower demand from the hospitality sector and difficulties exporting to overseas markets had held back sales.
Firms in the metals and mining and industrial goods manufacturing sectors cited increased global demand for raw materials and other manufacturing inputs.
Supply chain issues disrupt some manufacturing sectors
While UK manufacturers broadly outperformed services businesses for the eleventh consecutive month during January, the output of the automotive (42.4 versus 60.7 in December), chemicals (45.0 vs 63.2) and household product (34.9 vs 57.1) manufacturing sectors fell into contraction.
Firms in these sectors cited significant supply chain disruption for falling output, including longer delivery times due to a global shortage of critical components and shipping containers.
The scarcity of raw materials meant that UK manufacturers experienced the sharpest rate of price inflation in four years during January, in addition to a fall in orders from EU clients following a spike in pre-Brexit stockpiling in December and intensifying national lockdown measures on the continent.
Successful vaccine rollout pushes UK firms’ growth expectations ahead of global pack
Turning to the Tracker’s measure of expected output, ten of the fourteen sectors monitored anticipated stronger output growth in the UK than their global peers over the next 12 months, as the UK’s Covid-19 vaccination programme outpaced other major economies.
The metals and mining (82.1) and healthcare (80.8) sectors were the furthest ahead of the global benchmark during January, reflecting strong order books and pandemic-related work respectively. A reading above 50 signals that respondents expected output to rise in the next 12 months, while a reading below 50 indicates output is expected to contract
Meanwhile, the proportion of UK firms that mentioned ‘redundancies’ when reporting on their staffing trends dropped to just 8% in January, the lowest proportion since April 2020. In contrast, 20% of survey respondents mentioned ‘furlough’, the highest proportion since July 2020.
Both findings follow the Government’s December update on the Coronavirus Job Retention Scheme (CJRS), which extended the programme to the end of April 2021.
Jeavon Lolay, Head of Economics and Market Insight, Lloyds Bank Commercial Banking, said: “The output of consumer-facing services was predictably the most affected by the latest lockdown, with clear indications that activity was hit harder than during last November’s restrictions.
“However, the performance of those businesses still able to trade was more mixed. While global supply chain disruption and raw material shortages caused major issues for some key manufacturing sectors, it boosted output growth for beverages and food, metals and mining and industrial goods manufacturers.
"While the current lockdown will continue to significantly impact the UK’s prospects in the short term, it is also clear that the progress of the vaccine rollout has instilled confidence for the future. UK business expectations for the next 12 months remained robust in January and well ahead of the global average, on hopes for a fast recovery once restrictions are loosened.”
Scott Barton, Managing Director, Corporate and Institutional Coverage, Lloyds Bank Commercial Banking, added: “While businesses are currently operating in challenging conditions, positive growth expectations for the coming year and output growth in some key manufacturing sectors are encouraging indicators of future recovery.
“It will be interesting to see how business growth expectations are affected by the Government’s ‘roadmap’ out of lockdown which is due to be published on Monday, and by changes to business support measures announced by the Chancellor in next month’s Budget.”
