Britain’s factories ended last year with a bang. “The UK’s manufacturing sector finished 2010 on a high note,” said Daniel Pimlott in the FT. Output, export orders and employment are all rising rapidly, according to this week’s Markit/CIPS purchasing managers’ index (PMI) of factory activity. The overall PMI came out at a 16-year high of 58.3, well above the 50 level that splits contraction and expansion. But on Britain’s high street it’s a very different story, according to some of the country’s biggest retailers.
What the commentators said
“Manufacturing is going through the roof,” said Neville Hill of Credit Suisse. This “truly spectacular” reading is “consistent with production rising at a quarterly rate close to 2%”, agreed Rob Dowson at Markit. Yet “on the downside, the other stand-out figure was a record increase in average input costs. Sectors such as clothing, food products and chemicals were hit hard by demand exceeding supply for certain key inputs, as well as rising energy costs. Bank of England Monetary Policy Committee hawks will be further unnerved by these rising price pressures.” Howard Archer at IHS Global Insight agreed this was “a fantastic PMI report, particularly given concerns that December activity could have been disrupted by severe weather.
It bodes well for output in the early months of 2011.” But he warned “manufacturing only accounts for 12.8% of GDP – and fiscal tightening really starts biting from early-2011, beginning with the VAT hike to 20%”.
This is George Osborne’s “biggest gamble yet with the economy”, said the Evening Standard’s Russell Lynch. “It’s just what retailers don’t need after a blizzard-hit festive season.” Consumer spending could “potentially even go into reverse”. Indeed, stark evidence of this is already showing through. Next, Britain’s second-biggest fashion chain, said like-for-like sales fell 6.1% between August and Christmas Eve. The retailer said it had been further hurt by “increased competitor discounting on the high street” and admitted “uncertainty” over 2011. Troubled music and books seller HMV revealed that trading has been so “challenging” that it’s “struggling to avoid breaching the terms of a bank loan”, said the BBC. “The core UK HMV division remains under considerable stress and this must raise questions over its long-term future,” said Investec. So far, British retail faces quite a New Year hangover.