Brexit Slows Down Factory Deliveries, Hitting U.K. Economy

Brexit drove the second-biggest jump in U.K. delivery times in at least 30 years this month, adding to Britain’s economic woes as Covid shut down services.

IHS Markit said Friday that U.K. output fell at the quickest rate since May, hurt by additional red tape from leaving the European Union single market and a severe lockdown at home. That followed data showing consumer confidence falling and retail sales weaker than expected.

Brexit Slows Down Factory Deliveries, Hitting U.K. Economy

Despite a last-minute deal to prevent tariffs on goods at the start of the year, commerce between the Britain and its largest trading partner has been hit by new border formalities. They include customs declarations and rules of origin paperwork, as well as the need for drivers to obtain a negative coronavirus test to enter France.

The pound fell 0.5% to $1.3661 as of 10:52 a.m. in London.

While the overall damage isn’t as bad as that seen in the spring, backing up Bank of England Governor Andrew Bailey’s assertion that the economy is learning to adapt to lockdowns, the data suggest the U.K. will continue to struggle this year after the worst recession in three centuries.

Markit said its composite Purchasing Managers Index slipped to 40.6 in January, well below the 45.5 forecast by economists and also the critical 50 mark that signals expansion. A gauge of services activity slumped to 38.8 while manufacturing dropped to 52.9. Delivery times jumped the most on record after the increase in the wake of the first lockdown.

In the euro area, supplier delivery times also rose the most since the data started being collected in 1997, with the exception of last April when factories closed worldwide, and input costs rose at the fastest pace in two years. Still, business optimism among manufacturers rose on both sides of the English Channel.

Brexit Slows Down Factory Deliveries, Hitting U.K. Economy

Earlier, the Office for National Statistics said U.K. sales in shops and online increased 0.3% last month -- a percentage point less than economists had expected. While the virus may be distorting the seasonal adjustment of the figures, December and the holiday shopping season are nevertheless crucial for retailers.

Clothing sales rose sharply in the month, but supermarkets and department stores declined. The drop in retail sales will knock 0.02 percentage point off overall output in the fourth quarter, the ONS said.

No End

After a brief respite in early December, Prime Minister Boris Johnson tightened the rules again in the middle the month and then imposed a national lockdown in January, with no end in sight.

That rounded off a tumultuous 2020 that devastated traditional retailers like Arcadia Group Ltd. but lifted those trading online like Inc. Online sales in 2020 increased by 46.1% by value in December, the biggest gain since 2008.

In a further sign of the economic difficulty that lies ahead, a separate report showed the emergency spending to support the U.K. through the pandemic pushed the nation’s budget deficit to a record 271 billion pounds ($370 billion) in the first nine months of the fiscal year.

Brexit Slows Down Factory Deliveries, Hitting U.K. Economy

Meanwhile, consumer confidence declined this month as Britons became more pessimistic about their own financial outlook, according to a survey by GfK. On Thursday, the ONS said purchases made by credit and debit cards fell 35% below pre-pandemic levels in the second week of January. Footfall in stores last week was one-third of where it was a year ago.

The economy may yet see a sharp rebound when it opens back up. Central bank Chief Economist Andy Haldane expects a strong bounceback by the middle of this year as vaccines against the virus take hold.

©2021 Bloomberg L.P.

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