UK manufacturers have recorded the sharpest rise in optimism since 1973 amid growing demand as Covid lockdown measures are relaxed, the latest snapshot of activity from the CBI shows.
In a poll of 288 leading industrial companies, the employers’ organisation found business sentiment increased in the three months to April at the fastest pace since April 1973, as progress with the Covid vaccine raised hopes for a rapid return to relative normality later this year.
Manufacturers also plan to hire staff at the fastest rate since 1974 in the next three months, according to the survey, as firms take on more workers to prepare for looser Covid restrictions.
It comes after official figures showed UK unemployment fell for the second consecutive month in February. However, it follows the fastest rise in redundancies on record late last year, while almost 5 million workers remain furloughed with the economy still under pressure from the pandemic.
Rain Newton-Smith, the CBI’s chief economist, said a phased relaxation of restrictions had lifted the mood among firms, driving orders, employment and investment plans, but said it would take time for companies to recover from the worst recession in 300 years. “Continuing to support firms while they get on a steadier footing as restrictions ease will be crucial to recovery. The government should continue to work closely with business to ensure reopening is a success, while boosting competitiveness over the long term,” she said.
Economists said manufacturers were more optimistic about the future with Brexit now largely in their rear-view mirror. Domestic orders expanded at the fastest rate since July 2018, while export orders were flat – although this was the strongest performance in two years after a period of intense uncertainty over Brexit.
However, manufacturers suffered a sharp drop in exports at the start of the new trading relationship with the EU because of border delays and extra paperwork. Exports have picked up in recent months, but friction is expected to form a permanent feature of the post-Brexit UK-EU trading relationship.
Average costs accelerated at the fastest pace since April 2011, reflecting the disruption caused by Brexit and Covid, and rising demand for goods and materials.
In the early 1970s Britain recorded the strongest GDP growth since the second world war – before a period of economic turbulence took hold towards the middle of the decade, with strikes and industrial unrest, galloping inflation, the three-day week, and the winter of discontent. Early in 1973 the economy was booming as Edward Heath’s Conservative government went for growth, fuelling a property bubble, before problems started in the autumn with the oil price shock caused by the Yom Kippur war and industrial action by the National Union of Minerworkers.
This year Britain’s economy is forecast to grow by 4%, followed by 7.3% next year – the fastest growth rate since 1948 – as the pandemic recedes, with GDP recovering its pre-Covid peak by the middle of 2022. However, concern remains over the extent of lasting scars. The recovery would also be derailed if new variants caused a growth of infections and a return to tougher government restrictions.