Covid-19 and Brexit hit manufacturing orders

Brexit, Covid-19 and stockpiling led to a sharp fall in manufacturing output and new orders in January.

The introduction of a third lockdown to curb the spread of Covid-19 and adjustment to post-Brexit trading arrangements saw the strong growth evident among manufacturers in December reversed, according to the latest purchasing managers' index (PMI) published by AIB.

Suppliers’ delivery times widened to the second longest on record, while cost pressures intensified, its snapshot of the sector found.

The overall index reading of 51.8 in January, down from 57.2 in December, represented a three-month low for the sector. It does however confirm that the sector is still expanding, albeit more modestly. Any figure above 50 points too expansion.

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‘Not unexpected’

"This decline was not unexpected," said AIB chief executive Oliver Mangan. "Stockpiling ahead of the end of the Brexit transition period was one of the factors behind a sharp rise in the December index. This unwound in January, with new post-Brexit UK trade regulations and disruptions an additional headwind for the sector."

The tightening of Covid-19 restrictions, both by the Government and in other jurisdictions, added to the more difficult backdrop, with companies reporting lower demand.

Employment did rise for the fourth consecutive month, although AIB described the increase as “marginal”.

Companies were more optimistic regarding the outlook for the next 12 months in the expectation that rollout of vaccines will release pent-up demand in the economy.

Underlying weakness

“Although the PMI remained above 50 and thus stayed in expansion territory in January, the main components of the survey point to marked underlying weakness in the sector,” Mr Mangan said.

Alongside the “steep declines” in output and new orders, new export orders fell at their quickest pace since September. The purchase of inputs also fell back sharply after a big rise in December.

“The impact of Brexit on trade, as well as the new lockdown measures, can be seen in the major delays in the delivery of inputs in January, with the index plunging to its second lowest level on record,” he added.

“Not surprisingly, this is putting upward pressure on prices, with both input and output prices recording further large gains.”