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UK PMI data show smaller firms hit by slumping exports so far
in 2021, contrasting with strong export growth at large firms
Brexit trade barriers seen as key impediment to smaller firms'
access to EU market
Smaller firms' optimism slips, but larger companies grow more
upbeat
The latest PMI data from IHS Markit/CIPS showed encouraging
signs of the manufacturing sector's performance improving, but dig
deeper into the data and we can see smaller companies are
struggling, notably in respect to exports.
The PMI survey's flash data for April showed exports returning
to growth after three months of decline. However, the rate of
increase remained relatively subdued compared both to domestic
orders and export trends seen in many other economies, often linked
to post-Brexit trading conditions. Most strikingly, German goods
exports have been running at a record high in recent months,
according to PMI data, leading to the fastest back-to-back months
of eurozone goods export growth on record in March and April.
The main area of weakness in the UK's export underperformance
can be traced to falling exports at smaller firms, as highlighted
by our recent
NatWest UK Small Business Recovery PMI®
Whereas small, medium and large sized companies all reported
rising exports in the closing months of 2020, in many cases
attributed by survey respondents to pre-purchasing of supplies
ahead of the introduction of new Brexit-related trade laws on 31st
December. markedly divergent trends by company size have been
apparent so far this year.
Looking at the first three months of the year for which data by
company size are currently available, small firms have seen a steep
decline in exports on average, contrasting with an ongoing sharp
increase in exports at larger firms.
At 44.1, the average PMI new exports orders index for smaller
firms (with less than 50 employees) during the first quarter
compared with 47.6 for medium sized firms and a buoyant 58.9 for
large manufacturers (with more than 250 employees). Any reading
below 50 signals a monthly contraction while readings above 50
signal an increase.
Smaller manufacturers widely noted that new trading arrangements
with EU clients had had a severe impact on sales throughout the
first quarter.
This divergent export performance goes some way to explain why
larger manufacturers are considerably more optimistic about the
year ahead than smaller producers. While larger firms were the most
upbeat for seven years about future prospects, sentiment slipped
lower in small and medium sized companies, suggesting this trade
divergence could persist into coming months.
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.
