01/05/20
OBR forecast for output fall likely to be underestimate
Key findings:
- Over three quarters of companies have seen a decrease in sales
- Four fifths of companies have seen a decrease in orders
- One in five companies have seen their orders fall by more than half
- One in five companies have furloughed up to a quarter of staff, 15% by up to half
- A third of companies will wait to see an increase in orders before taking staff off furlough
Britain’s manufacturers have experienced a collapse in demand as the impact of the global lockdown due to coronavirus hammers home with a warning that conditions are unlikely to return to anywhere near normal for some time according a new survey published today by Make UK, the manufacturers’ organisation.
Publishing its first Covid 19 Manufacturing Monitor, Make UK also warned that the extent of the fall is likely to mean that the recent Office for Budget Responsibility (OBR) forecast of a 55% fall in manufacturing output in the second quarter is likely to be an underestimate as things stand.
Make UK added that the extent of furloughing within the sector and, the prospect that a significant number of companies will not take staff off furlough until they see orders increase, means the Government will have to consider extending some form of job retention plan beyond the end of June when the current scheme is due to finish.
Make UK Chief Executive, Stephen Phipson, said:
“While many manufacturers continue to operate and supply our food, vital medical equipment and PPE, there is no disguising that for the sector overall these are deeply worrying times. The extent of the collapse in demand is such it means that the recent OBR forecast could be an underestimate unless there is a quite remarkable turnaround which, to be frank, just isn’t going to happen.
“All the indications at the moment indicate that, even if a gradual easing of lockdowns begins soon, the impact of this shock will continue to hit companies and livelihoods for some time to come. As such, Government may need to be flexible with its future support schemes in the same way that industry is going to have to be flexible with its recovery plans. There will be a medium term need for government to support a recapitalisation effort for businesses who will struggle to repay debt incurred during lockdown."
According to the Monitor, published ahead of the May PMI, 87% of companies are continuing to operate in some form. However over three quarters (77.5%) have seen a decrease in sales whilst four fifths (80.6%) have seen a decrease in orders. For almost a quarter of companies (22.1%) the fall in orders has been between 26% and 50% whilst for one in five companies (19%) the fall has been between 50% and 75%.
As with other sectors of the economy companies have made significant use of the Government’s Job Retention Scheme in order to retain key staff. Almost a fifth of companies (19%) have furloughed between 11% and 25% of employees whilst 15.9% have furloughed between 26% and 50% of staff. Over a fifth (22.5%) say they intend to furlough more staff in the next fortnight.
The survey also shows that taking staff off furlough is likely to be a prolonged process with almost a third (32.9%) saying they will wait to see orders increase whilst over a quarter (25.3%) say it will be a phased process. As such Make UK believes the Job Retention Scheme will need to be extended and be more flexible to support a recovery
The survey of 297 companies was carried out between 20 and 27 April.
Full Manufacturing Monitor publication can be seen here