Survey shows economic extent of pandemic havoc

The damage the Covid-19 pandemic is wreaking on the UK economy was graphically illustrated by three reports published on Thursday.

David Sapsted

23 April 2020

In the three months to April, manufacturers reported the quickest falls in output volumes and total new orders since 2009, while business optimism plunged at an unprecedented pace, according to the latest quarterly Industrial Trends Survey from the Confederation of British Industry (CBI).Meanwhile, the IHS Markit/CIPS composite purchasing managers' index (PMI) for the UK found that business activity in April dived at the fastest rate on record because of the cross-sector shutdowns caused by the coronavirus outbreak.

Office for National Statistics (ONS): public sector borrowing surges

And data from the Office for National Statistics (ONS) showed that public sector borrowing surged by £3.1 billion last month because of the initial effects of the pandemic - and the ONS said the figure was likely to be conservative and would probably be revised upwards later.The ONS pointed out that the March figures did not include extra healthcare spending and that coronavirus financial support measures for businesses and staff had not yet been factored in as they were only launched in late March or did not come into effect until this month.Last week, the Office for Budget Responsibility estimated that the support measures could result in the budget deficit soaring by £218 billion in the current financial year to £273 billion.The composite PMI for the UK, which reflects the services, manufacturing and construction industries, recorded a reading of just 12.9 for April, down from 36 last month in an index where any reading below 50 represents contraction.

Majority of manufacturing and services companies record a decline

Some 81% of companies in the services sector reported a fall in business, while 75% of manufacturing firms recorded a decline. Chris Williamson, chief business economist at IHS Markit, said the reading was consistent with GDP falling at a quarterly rate of about 7%."The actual decline in GDP could be even greater, in part because the PMI excludes the vast majority of the self-employed and the retail sector, which have been especially hard-hit by the Covid-19 containment measures," he added."Business closures and social distancing measures have caused business activity to collapse at a rate vastly exceeding that seen even during the global financial crisis, confirming fears that GDP will slump to a degree previously thought unimaginable in the second quarter due to measures taken to contain the spread of the virus."The CBI report, based on a survey of 330 manufacturing firms, said firms were expecting a sharp fall in output in the quarter to April and that there would be an even sharper contraction in the coming three months.Investment plans for the current financial year sank to a survey-record low while companies expected to reduce headcounts at the fastest pace since 1980 over the next quarter.About half of manufacturers reported a partial shutdown of operations or total closure, while just over half said they had temporarily laid off staff. However, only one in twenty reported permanent layoffs.Rain Newton-Smith, chief economist at the CBI, said, “Manufacturers have taken a sharp hit during the shutdown in response to Covid-19, with this survey revealing some record lows. Despite the already-quick fall in output and orders in the quarter to April, expectations point to a faster decline in the next three months."Given the uncertainty over how long the shutdown may have to last, it’s little surprise to see businesses putting investment plans on ice as they work hard to get through this intact.“The government and Bank of England support schemes are vital to ensuring that businesses are able to re-open when appropriate. And ensuring those schemes reach companies on the ground swiftly is essential.”