Blog: UK economy stabilises even as Brexit hits manufacturers – Yahoo Finance UK

UK economy stabilises even as Brexit hits manufacturers

Oscar Williams-Grut

Oscar Williams-Grut

·Senior City Correspondent, Yahoo Finance UK
·2-min read
A woman wearing a face covering walks past a shop window in London, Thursday, Jan. 14, 2021 during England's third national lockdown to curb the spread of coronavirus. (AP Photo/Kirsty Wigglesworth)
A woman wearing a face covering walks past a shop window in London, Thursday, Jan. 14, 2021 during England’s third national lockdown to curb the spread of coronavirus. (AP Photo/Kirsty Wigglesworth)

The UK economy appears to be stabilising after a slump at the start of the year.

IHS Markit’s purchasing managers index (PMI) delivered a flash reading of 49.8 for February, which was a two month high. PMIs are given on a scale of 0 to 100, with anything above 50 signalling growth and anything below meaning economic contraction.

Business activity collapsed in January as the UK returned to lockdown. But things are improving in the current month, with service sector activity stabilising and manufacturing production continuing to expand.

“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,” said Chris Williamson, chief business economist at IHS Markit.

IHS Markit’s closely watched private sector survey found expectations for the year ahead improved at the fastest rate in seven years, propelled by hopes of a vaccine-led economic recovery later in the year.

“The PMI figures are consistent with a modest contraction of GDP in the current quarter, but we remain confident that there will be a strong rebound thereafter,” said Dean Turner, a UBS economist.

Watch: UK economy shrank by record 10% in 2020

Hopes of a vaccine-led economic recovery have propelled the pound in recent weeks and sterling hit $1.40 for the first time in almost three years on Friday.

While manufacturing production continued to grow, Williamson said the sector was suffering from the effects of Brexit.

“More than half of all companies reporting lower exports attributed to the decline to Brexit related factors,” he said. “Brexit was also the most commonly cited cause of supply delays.”

Duncan Brock, group director at the Chartered Institute of of Procurement & Supply, which helped put the PMI survey together, said: “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.

“Covid disruption has concealed the impact of Brexit on the UK economy and is still to be fully understood or managed, and pervasive supply chain upheaval is therefore a mounting risk for the speed of recovery.”

Watch: How to prevent getting into debt

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