Wednesday 1 July 2020 9:54 am

UK manufacturing activity steadies in June following historic slide

Activity in the UK’s manufacturing sector grew narrowly in June as lockdown measures were eased, with companies reporting a small increase in output following the historic collapse triggered by coronavirus. 

June’s final reading for the IHS Markit/Cips manufacturing purchasing managers’ index (PMI) came in at 50.1, compared to May’s 40.7.

Read more: FTSE 100 subdued as coronavirus fears cast shadow over economic recovery

Any reading above 50 on the scale indicates growth, meaning that activity in British factories expanded by the slimmest of margins last month — the first expansion since February. 

“Output edged higher and domestic demand firmed as lockdown restrictions loosened, factories restarted and staff returned to work,” said Rob Dobson, a director at IHS Markit.

“The planned loosening in Covid-19 restrictions on 4 July 4 should aid further gains in coming months,” he added. 

The result is in line with the earlier “flash” reading for the month, which also came in at 50.1. Economists had expected the final reading to remain in line with the earlier estimate. 

PMI surveys are designed only to show the scale of monthly changes in output across businesses, meaning that the return to a reading above 50 does not signify a recovery to pre-coronavirus output levels.

Nevertheless, optimism among manufacturers rose to an almost two-year high, with over 63 per cent predicting that output would rise over the coming year. 

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Manufacturing output remained at a low level in June, while employment fell for the fifth consecutive month, the survey showed. 

While the rate of falling employment continued to ease slightly following a record plunge in April, it remained among the steepest in the survey’s 28-year history. 

Duncan Brock, group director at the Chartered Institute of Procurement & Supply said that while the UK manufacturing sector “may be springing back into action,” there could be dark times ahead “as government support falls away and businesses are left with decisions to make on whether they can weather any continuing storms”.

The government’s coronavirus job retention scheme, which pays 80 per cent of the wages of furloughed employees, will begin to taper off from August before coming to an end in October.

Read more: UK GDP suffers largest fall since 1979 in first quarter of 2020

Over a quarter of the British workforce has been furloughed, and economists are predicting a steep rise in unemployment once government support is withdrawn. 

The Bank of England said Britain’s economy looked on course to have shrunk by around 20 per cent in the first six months of 2020 — a smaller decline than it had first feared, but still one of the biggest annual drops in 300 years.