Encouraging signs of recovery for the manufacturing sector

The June CIPS PMI returned to an above neutral measure in June at 50.1. This was a welcome return from the record lows seen in April and May and it seems the recovery phase is underway. Manufacturers commenced their return to work in June and hopefully this will continue through July as further government measures are eased.

Many manufacturers have reported that they are now able to operate effectively within the social distancing guidelines. Many sectors served by manufacturers have seen some normality return to their demand, although, as the survey highlights, the backlog of orders and new order intake is still weak.

Over the next quarter the financial lifeline of the Coronavirus Job Retention Scheme will gradually be removed and there is real concern for those sectors who supply non-essential ‘big-ticket’ items. Consumer behaviour will be critical for those sectors and there is a risk that demand recovery will be slow in the face of widespread redundancies.

The global economic impact and reshoring

Looking at the remainder of the year, many manufacturers will welcome the government beginning to relax rules relating to overseas travel corridors. Whilst they grab the headlines for holidaymakers doing business overseas is equally important. Making sure exports are driven with both existing and new customers remains a key strategy for both manufacturers and the UK economy as a whole. 

Beyond that the periodic 'local lockdowns' that are likely to be commonplace in our lives for the foreseeable future will undoubtedly bring challenges for UK manufacturers and the global economy. The US in particular is looking to become increasingly difficult to access in the near future. In China and in parts of Europe however there are signs of recovery and we rely on these economies with many suppliers and customers overseas.

Reshoring has been a trend within UK manufacturing in recent years, with improved quality and speed of delivery being two critical benefits. In light of coronavirus many more businesses are now looking to shorten supply chains and to improve resilience, often looking at multiple suppliers and UK based options that might have been discounted in the past.

Whilst the survey results are welcome the longer-term outlook is still bleak. 2020 is clearly a write-off in economic terms, but only time will tell if 2021 will see a strong rebound and, perhaps more importantly, whether the sector will still have sufficient capacity and agility to capitalise on all of the opportunities that may present themselves.