Brexit and Covid hit demand for exports from UK factories

Britain’s manufacturers have suffered a drop in export demand amid pressure from Covid and Brexit, according to fresh data that shows supply chain disruption and staff shortages held back the economy in December.

The latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply (Cips) showed growth in UK factory output was limited last month by Covid restrictions and Brexit weighing on orders and pushing up costs.

According to the survey of 650 manufacturers, which is tracked by the government and the Bank of England for early warning signs from the economy, inflows of new work from overseas dropped for the fourth month in a row.

While firms reported continued growth at the end of last year and a slight easing of supply chain delays, manufacturers said logistics issues, Brexit difficulties and the possibility of further pandemic restrictions at home and overseas had damaged export demand at the end of the year.

New trade restrictions since leaving the EU and the impact of the pandemic mean that Britain’s exporters are on track to be the slowest among big European economies to recover from Covid-19, according to research by Euler Hermes.

The Paris-based trade credit insurer forecasts UK exports will not recover to pre-pandemic levels until 2023, leaving the UK lagging European counterparts, with data expected to show that Germany and Italy have already recovered in 2021 and other nations will do in 2022.

The forecast comes despite a rise in demand for manufactured goods across advanced economies as consumers turn to purchasing physical products while pandemic restrictions limit appetite for services.

Ana Boata, the head of economic research at Euler Hermes, said: “Our forecasts show that Brexiting in times of Covid-19 has hindered exporters’ capacity to benefit from the strong upswing in demand that lockdown has presented.”

She said fresh post-Brexit border controls on UK imports at the start of 2022 would bring further disruption, while the Omicron coronavirus variant would add to severe uncertainty facing firms.

“British exporters have been tasked with sailing increasingly perilous trade waters in recent years – another 12 months of headwinds could be enough to sink many,” she added.

According to the latest snapshot from IHS Markit/Cips, UK-based firms suffered from rising costs for freight, shipping and air transportation amid supply chain disruption.

However, firms also recorded further growth of production, new orders and employment at the end of 2021. Hiring increased for the 12th successive month in a row in December, as firms battled to meet improved demand, rising backlogs of work and efforts to address staff shortages.

The IHS Markit/Cips manufacturing purchasing managers’ index (PMI) rose to 57.9 in December, little changed from a three-month high of 58.1 in November. A mark above 50 signifies growth as opposed to contraction.

Inflationary pressures remained high, and companies reported a sharp increase in costs for chemicals, electronics, energy, food products, metals, timber and wood.

Although firms were optimistic that disruption linked to Covid and Brexit should gradually fade over the course of 2022, experts warned headwinds for UK factory output and exports remained.

Dave Atkinson, a regional director at Lloyds Bank, said: “There are tentative signs as the pace of output growth builds that some supply chain pressures, which have dragged on the sector for months, are starting to ease. But manufacturers expect supply headaches to persist throughout 2022, with chip shortages in particular likely to be prevalent even into next year.”

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