Economy shrinks further in February with exports hit

Simon Neville, PA City Editor

The UK economy continued to decline in the first two weeks of February, although the speed of the falls slowed compared with a significant slump in January, according to new data.

The closely-followed IHS Markit/CIPS Flash UK Composite PMI report came in at 49.8, with anything below 50 seen as a market in contraction.

This improved from January’s figure of 41.2.

Manufacturers reported severe supply chain disruptions due to international shipping delays, strong worldwide demand for raw materials and Brexit-related trade frictions.

Coronavirus – Fri Jan 29, 2021
Deserted high streets and city centres have seen the services sector continue to decline (Dominic Lipinski/PA)

But the sector still grew, recording a flash PMI of 54.1 as new orders increased, although exports remain problematic with many reporting difficulties fulfilling orders to existing clients in the EU due to higher costs and transportation delays.

The services sector continues to struggle as Covid-19 lockdowns and restrictions remain.

It recorded a PMI of 49.7 compared with 39.5 in January.

But overall, the flash data for February, which comprises 85% of expected respondents for the final number released next month, showed only a fractional decline in private sector output compared with heavy falls in January.

In the manufacturing sector its output index grew slightly to record a score of 50.5 but the rate of growth was the weakest since June 2020.

The delays at ports and in global supply chains saw 58% of those surveyed report longer delivery times from suppliers, with just 2% revealing an improvement.

Services continue to drag down the overall score with tight restrictions on travel, leisure and hospitality remaining in place.

However, staffing levels in the sector showed signs of stabilisation, the survey found, with the level of job losses slowing compared with January.

Some manufacturers also reported that their own sales volumes have fallen due to the closures in hospitality, meaning the lockdown is having a knock-on effect.

Data also showed a slight reduction in the total new work received by businesses – for the fifth consecutive month and export sales underperformed domestic orders for the first time since last September.

Chris Williamson, chief business economist at IHS Markit, which compiles the data, said: “The UK economy showed welcome signs of steadying in February after the severe slump seen in January, albeit with business activity remaining sharply lower than late-last year due mainly to the ongoing national lockdown.

“Although the hospitality sector, including hotels and restaurants, reported a further steep decline, as did the transport and travel sector, rates of contraction eased considerably.”

Duncan Brock, group director at CIPS, added: “February saw some of the worst supply chain disruptions since records began in the early 1990s, only surpassed by those reported in April last year as the pandemic first hit.

“Manufacturers were affected the most, as production in some cases was halted due to shortages in shipping and raw materials and many services businesses remained in a lockdown stranglehold unable to operate.”

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