More sectors report output growth for the first time since April
The number of UK sectors reporting output growth increased for the first time in six months in October, according to the latest Lloyds Bank UK Sector Tracker.
Although a majority (10) of sectors monitored by the Tracker continued to report further falls in output in October, four saw activity expand. This was two more than in September and the first time since April that there has been a month-on-month rise, indicating some bright spots in the UK economy amid overall challenging conditions.
Food and drink manufacturing (55.2 in October vs. 57.5 in September) and software services (58.5 vs. 56.6) sectors reported another consecutive month of output growth. Software services posted the fastest rate of output growth of all sectors monitored, while the pace of growth slowed marginally for food and drink manufacturers month-on-month.
Real estate (51.5 vs. 44.9) and metals & mining (51.7 vs. 45.7) also saw output expand. A reading on the Tracker above 50.0 indicates expansion, while a reading below 50.0 indicates contraction.
Three of the 14 sectors also recorded rising demand – food and drink manufacturing (59.6 in October vs. 60.7 in September), software services (54.6 vs. 55.2) and real estate (51.4 vs. 44.0) – albeit with food and drink manufacturing and software services seeing demand grow at a marginally slower pace than the month before.
Overall, this was a slight increase on September when two of the 14 sectors recorded rising demand.
Food and drink demand supported by cuts in selling prices
Food and drink manufacturers reported the strongest pick up in new orders of any sector.
This was supported by producers reducing their selling prices at the fastest rate on record (43.8 in October vs. 48.8 in September), as the sector benefitted from a sharp fall in input costs (36.6 in October vs. 42.4 in September).
Together, these factors helped boost food and drink manufacturers’ expectations of future output levels (80.0 in October vs. 76.1 in September) to the joint-highest of all 14 sectors monitored.
Of the 10 sectors reporting output contraction in October, automobile and auto parts manufacturers saw activity decline at the fastest pace (34.7 in October vs. 40.9 in September). This came as automotive producers saw the sharpest drop in new orders placed for any UK manufacturing sector (39.1 vs. 41.4).
Nevertheless, automobile manufacturers posted the joint-strongest expectations of future output growth in October (80.0 in October vs. 75.0 in September), alongside food and drink manufacturers, suggesting producers are anticipating a turnaround albeit from a low base.
In October, all 14 sectors stated they were confident that their activity levels would be higher in a year’s time.
Nikesh Sawjani, senior UK economist at Lloyds Bank Commercial Banking, said: “This month’s Tracker suggests that overall economic conditions remain challenging in the UK, although it is encouraging that the number of sectors reporting rises in output increased month-on-month. There’s no certainty that this will continue, however, and it’s too early to say if this is a trend. All businesses continue to face challenges on a number of fronts, and their resilience could yet be tested further.
“The recent improvement seen across food and drink manufacturing has in large part reflected firms’ ability to cut selling prices in response to reductions in input costs. Not every sector will be able to do this, however, suggesting that some sectors are likely to continue experiencing tough conditions for some time.”
Annabel Finlay, managing director, food, drink and leisure at Lloyds Bank Commercial Banking, added: “The UK’s food and drink sector is certainly showing its resilience. The ability for businesses to lower prices charged to customers will be very welcome in the run-up to Christmas, helping producers capitalise on the consumer opportunities of the festive season.
“While it’s clear that the sector is confident in growing output over the medium term, as companies look ahead, food and drink manufacturers will continue to monitor the risks. There are still uncertain and dynamic economic conditions to navigate, so making sure that businesses have the working capital flexibility to weather both upturns and downturns will be key.”
