The UK manufacturing sector could be facing a huge wave of job losses as government support for businesses hit by the coronavirus pandemic comes to an end, economists warned.
Although factory activity in the UK grew by the slimmest of margins in June, the IHS Markit/Cips manufacturing purchasing managers’ index (PMI) showed, the survey painted a gloomy picture for employment in the sector.
Manufacturing employment fell for a fifth straight month in June, and while it continued to ease slightly compared to the record plunge recorded at the height of the coronavirus crisis in April, June’s fall remained among the steepest ever in the survey’s 28-year history.
“There were reports of redundancies, cost control efforts, workforce restructuring and the non-replacement of leavers,” the survey said
Rob Dobson, a director at IHS Markit, said the industry’s focus was “shifting towards the labour market,” where the news is “less positive” than in other areas.
“Concerns are rising about the potential for marked job losses, especially once the phase out of government support schemes begins,” he added.
The government’s coronavirus job support scheme, which covers most of the costs of furloughed employees’ wages, will begin tapering off from August before stopping entirely at the end of October.
Many economists have warned of the risk of a substantial rise in unemployment once the furlough scheme ends, with Bank of England rate-setter Jonathan Haskel saying today that there is “a great deal of uncertainty” as to how many of the 9.3m furloughed workers will be able to return to their jobs.
Dave Atkinson, UK head of manufacturing at Lloyds Bank, said he feared a spike in factory job losses.
“Manufacturers are now bracing themselves for the second half of the year in the knowledge that a reckoning looms,” he said.
The winding down of the furlough scheme by the autumn, and lower business levels in a number of subsectors, means more redundancies are likely.
Pantheon Macroeconomics’ Samuel Tombs struck a similarly downbeat note, warning: “The recovery will lose momentum before long”.
Noting that June’s PMI reading was partially boosted by supply chain disruptions causing a temporary increase in activity levels as manufacturers work through backlogs, Tombs said the survey “hardly suggests that manufacturers are gearing up for a V-shaped recovery”.
“What’s more, Brexit uncertainty likely will build over the coming months, as the December 2020 deadline for a trade deal with the EU nears without material progress in talks, hitting export demand and investment,” he continued.
“Accordingly, it remains highly unlikely that manufacturing output will recover to its pre-Covid level on a sustained basis within the next year,” Tombs said.