UK factories suffer worst quarter on record amid virus lockdown

British industrial output recorded its biggest quarterly fall on record during the three months to June as COVID-19 heavily disrupted operations, and a further decline is likely in the months to come, a survey showed on Monday.

The Confederation of British Industry’s (CBI) headline industrial orders measure inched up to -58 in June from May’s 38-year low of -62, but remained far below its pre-COVID level, while export orders fell by the most since records began in 1977 at -79.

The CBI said the steepest falls in production came in the automotive, mechanical engineering and metals sectors.

The Confederation of British Industry’s measure of industrial output over the past three months fell to its lowest since that measure started in July 1975, sinking to -57 from -54.

“The COVID-19 crisis has been hugely challenging for the manufacturing sector, and these figures reflect the tough circumstances faced by firms across the country,” said Tom Crotty, group director of chemicals producer INEOS and chair of the CBI’s manufacturing council.

Official data for April showed a historic 28.5 per cent year-on-year fall in factory output.

Manufacturers are somewhat less pessimistic about the next three months, with output expectations rising to -30 from -49, despite the weaker demand from overseas, though this is well below the series’ long-run average of +8.

Meanwhile the British retail sales rebounded much more strongly than expected in May as the country gradually relaxed its coronavirus lockdown, but public borrowing hit a record high and debt passed 100 per cent of economic output.

Sales volumes in May jumped by a record 12 per cent after a historic 18 per cent slump in April, an official data showed on Friday. The rise was at the top end of economists’ forecasts in a Reuters poll but still left sales 13.1 per cent down on a year ago.

Consumer confidence figures for June were the strongest since the lockdown began but remained weak, a separate survey showed. Bank of England (BoE) Governor Andrew Bailey said the economy appeared to be shrinking a bit less severely in the first half of 2020 than the BoE feared last month. But there was no guarantee of a strong rebound and unemployment would rise.

“May’s recovery in retail sales should not be interpreted as a sign that the economy is embarking on a healthy V-shaped recovery from COVID-19,” Samuel Tombs, an economist at Pantheon Macroeconomics, said.

He said household incomes would be strained when a government support scheme that covers 9 million jobs is wound up in October, before some sectors are likely to be back to normal.

Britain closed non-essential retailers in late March and only a small number such as garden centres reopened in May. Other stores in England were permitted to reopen on June 15 subject to restrictions.

Sales at non-food stores increased by 24 per cent in May, but were still 42 per cent down on a year earlier, with clothes stores the hardest-hit category, down by more than 60 per cent.

But fuel sales jumped by 49 per cent as people in England got back in their cars. Online sales rose to a third of all spending, a new record.

The ONS data also laid bare the scale of the hit to Britain’s public finances as a result of the government’s huge increase in spending, much of it on its job retention scheme.

Public sector net borrowing hit 55.2 billion pounds ($68.7 billion) in May - a record high after April’s reading was revised down to 48.5 billion pounds from 62.1 billion. The May figure was nine times bigger than the deficit in same month last year. “The best way to restore our public finances to a more sustainable footing is to safely reopen our economy so people can return to work,” finance minister Rishi Sunak said.

A measure of public sector debt edged above 100 per cent of economic output for the first time since 1963, when Britain was still paying off the costs of the Second World War, reflecting the record contraction of the economy in April.

Also the British households remain downbeat about their financial prospects due to the damage caused by COVID-19, but are less pessimistic than in May and April when sentiment sank to its lowest in more than eight years, a survey showed on Monday.

IHS Markit’s monthly Household Finance Index for June was in line with other data which has suggested a moderate recovery since economic output collapsed by a historic 20 per cent in April when swathes of businesses were shuttered.

The index rose to 40.7 in June from 37.8 in May, but remained below its pre-COVID average of just under 45.

Reuters