UK manufacturing output is likely to plunge by more than 55 per cent in the second quarter as demand evaporates due to the coronavirus outbreak, an industry body has said. It added that firms are set to need more government support as the lockdown is eased.
The warning came as a survey showed that the UK private sector suffered its worst three months since the financial crisis in the February to April period, with more than 40 per cent of firms completely shutting down operations.
The UK has now suffered close to 27,000 coronavirus deaths with more than 171,000 confirmed cases. The government’s strict measures to contain the virus have spelled disaster for the economy, which could shrink by 35 per cent in the second quarter according to the Office for Budget Responsibility (OBR).
Yesterday, Prime Minister Boris Johnson said restrictions will remain in place for the time being but that the government will soon lay out a “road map” for reopening the economy.
Manufacturing industry body Make UK today said that even a gradual easing of lockdown measures would “continue to hit companies and livelihoods for some time to come”.
Its manufacturing monitor report said that the 55 per cent drop in factory output laid out in the OBR’s “scenario” last month is likely to be an underestimate.
Make UK chief executive Stephen Phipson said: “There is no disguising that for the sector overall these are deeply worrying times.”
UK firms expect output to slump in coming months
The dire prediction came as another report said more than 40 per cent of UK firms have completely closed operations, either temporarily or permanently.
The CBI’s growth indicator showed that private sector activity fell at the sharpest pace since July 2009 in the three months to April. Respondents to the CBI’s survey said worse is yet to come, however.
Services firms are the most pessimistic about the coming months, with both business and professional services and consumer services firms at their gloomiest about future growth since records began in 1998.
Both Make UK and the CBI said unprecedented government intervention had stopped a complete collapse, however. They both cited the job retention scheme, which steps in to pay workers’ wages so long as they are “furloughed”.
The CBI said that although unemployment is still set to rise at its fastest pace since at least the financial crisis, 48 per cent of firms said they had only temporarily laid off staff in the three months to April.
Business groups say more help is needed
Make UK’s Phipson said businesses are likely to need government support to continue as the economy gradually reopens and firms are operating at a lower capacity and with lower demand. The job retention scheme is currently set to run until the end of June, although the government is keeping it under review.
“Government may need to be flexible with its future support schemes in the same way that industry is going to have to be flexible with its recovery plans,” Phipson said.
“There will be a medium term need for government to support a recapitalisation effort for businesses who will struggle to repay debt incurred during lockdown.”
Alpesh Paleja, CBI lead economist, highlighted the necessity of the lockdown to preserve lives and praised the coronavirus support schemes.
However, the business group reiterated concerns that loans are not getting through to firms fast enough through the flagship coronavirus lending scheme. It said the government should “consider wider use of grants and business holidays”.
Paleja also said the government’s measures may have to stay in place longer than initially planned. “They should continue to remain agile as the situation evolves, ensuring that money gets to those who need it fast,” he said.
“The greater the number of companies helped to survive, the sooner the UK economy can restart and revive.”