South: Manufacturing on slow path to recovery

Manufacturing output across the UK increased significantly in May from its record low level as manufacturers started to emerge from the coronavirus lockdown, according to figures from the latest BDO Business Trends report.

BDO’s Manufacturing Output Index, which provides the most comprehensive snapshot of business output by weighting macroeconomic data from the UK’s main business surveys, jumped by 16.58 points to 69.55 in May, regaining around half of the losses sustained between March and April as manufacturers benefited from the easing of UK lockdown measures.

Despite this jump, the index remains at historically low levels and well short of the 95 level which indicates positive growth overall. BDO’s Services Output Index saw a more modest increase, rising by 9.65 points to 53.53 points in May.

BDO’s forward-looking Optimism Index suggests businesses anticipate a long and difficult path to recovery. The overall index increased by just 1.94 points in May, driven by an increase of 4.32 in the Manufacturing Optimism Index. The figures show the scale of the challenge facing businesses even as they emerge from the worst of the crisis, as they grapple with social distancing restrictions and attention begins to re-focus on Brexit negotiations and international trade relationships.

This difficult path to recovery is also reflected in BDO’s Employment Index. The index sank a further 6.96 points to 89.22 in May, leaving it at a record low. The weak scores across all indices of BDO’s Business Trends report highlight the intensely challenging economic circumstances that the UK finds itself in, and suggests that the Employment Index will not recover for some time.

Commenting on the results, Arbinder Chatwal, partner & head of manufacturing at BDO in Southampton, said: “While the jump in manufacturing output offers a glimmer of hope, early signs point to this being a long road to recovery. The UK is experiencing the deepest economic contraction in living memory, and possibly in its history.

“Output remains drastically below where it would be in ordinary times, but the latest readings suggest we have passed the rock bottom of this crisis. I’m optimistic for further gains in the Output Index in June if the government proceeds with plans to gradually open up the economy." 

To download BDO’s Business Trends New Economy report and find out more, visit www.neweconomy.bdo.co.uk