Page 13 - IT_June_2020_Classical

BACK TO

BUSINESS

Optimism as PM Index rises in May

UK MANUFACTURING IS SHOWING
TENTATIVE SIGNS OF RECOVERY
AS COVID-19 LOCKDOWN EASES

he downturn in UK manufacturing continued
during May, an authoritative survey has shown,
though the pace of decline has slowed. With
Tpublic lockdowns, company shutdowns and
social distancing measures in force, April had been the
worst month ever recorded by the closely-watched IHS
Markit/CIPS Purchasing Managers’ Index.
This is a monthly survey, considered a barometer of
the UK economy, conducted by IHS Markit and the
Chartered Institute of Procurement and Supply (CIPS).
Output, new orders and employment contracted at some
of the fastest rates during the survey's 28-year history.
In May, the IHS Markit/CIPS Purchasing Managers’
Index showed continued decline in manufacturing output,
new orders and employment. However, that drop was less
sharp than in April and was helped by growth in
healthcare and PPE manufacturing. And the index rose to
40.7 in May, which was still the seventh-lowest ever
score in the survey’s history, up from 32.6 in April.
As some factories began reopening, manufacturers
told IHS Market’s researchers that social distancing ease and clients reopen. Rob Dobson, director at IHS suggest the UK is set for a drawn-out economic recovery.
measures mean lead times for orders have increased. Markit, said that “the glass half-full perspective is one This will make the ‘new normal’ one of the toughest
Vendor lead times lengthened to the second-greatest where the rate of contraction has eased considerably recovery environments many manufacturers will ever have
extent in the survey history, following a record increase in since April, meaning – in the absence of a resurgence of to face.”
April. infections – the worst of the production downturn may be
behind us”. Uncertainty the watchword
Sentiment rise Manufacturing employment fell for the fourth Duncan Brock, group director at CIPS, said that even with
The ongoing pandemic and uncertainty about the path successive month in May, as the economic consequences the slight uplift in May’s sentiment as firms began to
ahead continued to weigh on business sentiment in May. of the Covid-19 pandemic led companies to reduce staff recover, optimism remained depressed. “Worries over
Although rising to a three-month high, confidence headcounts. Although easing since April, the rate of safety for returning staff and repairs to broken supply
remained downbeat by the historical standards of the decline was still the second-sharpest on record. chains will be uppermost in business minds, and are
survey. Companies still expect to see output rise during Dobson said that “changes to working practices, obstacles to be overcome before real recovery can begin.
the next 12 months, however, forecasting that market uncertainty about how long the Covid-19 restrictions may Uncertainty remains the watchword for the months
conditions would recover some lost ground as lockdowns be in place for, weak demand and Brexit worries all ahead.”

Trade Credit Insurance backed by £10bn guarantee

he Government has announced that Trade Credit take 90% of the premium and claims. This sharing of risk in the UK market, covering both domestic and overseas
Insurance, which provides essential cover to will allow insurers to provide wider cover to UK trade for businesses with payment terms of up to two
hundreds of thousands of business-to-business businesses affected by the Covid-19 crisis, and to aid years.
Ttransactions, will receive up to £10 billion of companies to resume trading, knowing that they are l The Government will reinsure 90% of insurance
government guarantees. The Trade Credit Reinsurance, protected from the failure of trading partners to pay for claims up to a cap of £3bn and 100% of claims between
led by the Department for Business, Energy and Industrial goods and services supplied. £3bn and £10bn.
Strategy, will temporarily reinsure the credit risks of l The Government will receive 90% of gross policy
business-to-business transactions covered by Trade Credit Easier access to cover premiums and return 35% of these premiums to insurers
Insurance in the UK. UK businesses covered by trade credit insurance will be to cover their costs.
Trade credit insurance protects businesses if included automatically in the scheme if their insurer The scheme rules will require participating insurers to
customers in the supply chain who owe money for participates in it. They should consequently find it easier comply with certain undertakings regarding the conduct
products or services do not pay their debts or pay them to access cover in the market that would otherwise have of their business during the period of the scheme. This
later than the payment terms dictate. Under this been difficult to provide. includes conditions that they will forgo profits and not pay
temporary scheme, the Government will act as a reinsurer The scheme will run until 31 December 2020, with a dividends or bonuses for senior staff for their guaranteed
to the trade credit insurance industry, sharing the risk of review on potentially extending it taking place at the end Trade Credit Insurance business. The scheme will be
losses arising from business insolvency with insurers. of September. The key parameters of the scheme are: followed by a joint BEIS and HMT-led review of the Trade
Under this scheme insurers will take 10% of claims l The scheme is delivered through a temporary Credit Insurance market to ensure it can continue to
that result from business failure while government will reinsurance agreement with insurers currently operating support businesses in future.

May/June 2020 • INDUSTRIAL TECHNOLOGY 13