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PMI survey data reveal how the UK's manufacturers have
underperformed their peers in the eurozone to the greatest extent
for over two decades so far this year, coinciding with the end of
the Brexit transition period.
UK suppliers of components to other firms in particular have
seen only a marginal increase in export sales, suggesting the UK is
largely missing out on the recent surge in demand for inputs from
the world's factories. The eurozone, in contrast, has meanwhile
seen record export growth of components.
While larger firms have enjoyed rising overseas sales on the
back of the fastest global manufacturing expansion for a decade,
small UK firms have seen an overall drop in export sales so far
this year to indicate an unprecedented underperformance by small
firms compared to larger companies.
UK manufacturers reported a slowing in the rate of expansion in
June, linked in many cases to a marked waning in growth of new
export orders. According to IHS Markit's PMI data, new orders for
exports of goods flowing out of the UK has now slowed below that of
all other major European peers.
While the UK's new export orders index fell from 59.7 in May to
55.2 in June, the equivalent index for the eurozone registered
61.4, easing only marginally from 62.0 in May. This 6.2 index point
gap between the UK and eurozone PMI new export orders indices
points to a substantial underperformance of UK exports relative to
the eurozone in June, albeit with even stronger underperformances
seen earlier this year.
Looking at the first six months of 2021, since the end of the
Brexit transition period (when the UK left the European Union's
single market and customs union), the average underperformance of
UK goods exporters compared to the eurozone has been the highest
since 2000.
UK suppliers bear the brunt of Brexit
The survey data also reveal how it is suppliers of components to
other companies that have suffered the most in terms of
underperforming export growth in 2021 so far. The UK PMI new export
orders index for these suppliers of 'intermediate' goods has
averaged just 50.5 so far this year compared to an average of 53.2
for producers of all goods. The comparable index for exporters of
intermediate goods based in the eurozone has meanwhile averaged
60.4 in the first six months of 2021, its highest ever reading.
This suggests that, at a time when the global manufacturing
economy has been growing at its fastest rate for a decade, and
likewise sucking up components at the sharpest rate for a decade,
UK component exporters have seen only a marginal expansion of
export sales while their peers in the eurozone have enjoyed record
growth. This is itself an underperformance by UK suppliers of a
degree never previously seen in at least 20 years of survey
history.
Small firms underperform to record extent
There has been an interesting disparity according to firm size
data. Larger UK firms have managed to build strong export growth
over the past six months, benefitting from the surge in global
demand as economies around the world open up from COVID-19 related
restrictions. Smaller firms, in contrast, have struggled to export.
The average new export orders index for small firms (with less than
50 employees) has averaged just 49.0 so far in 2021, signalling an
overall decline in exports. The index for large UK firms (with over
250 employees) has meanwhile averaged 62.3. This divergence is very
unusual: prior to the 2016 EU referendum, these indices averaged
49.5 and 51.2 respectively.
The resulting gap between the performance of large and small
firms is by far the widest on record since comparable data were
first available over 25 years ago.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
