Number of UK sectors with falling output highest since May 2020

The number of UK sectors experiencing falling output was at its highest level in 29 months in October, as demand for goods and services decreased, according to the latest Lloyds Bank UK Sector Tracker.

In October, 12 out of 14 sectors monitored by the Tracker recorded a contraction in output, up from nine in September and the highest number since May 2020, when the UK was first in lockdown.

Output contraction was caused by falling demand. Thirteen of the 14 sectors monitored by the Tracker recorded a decrease in new orders in October, up from nine in September, as rising inflation caused more businesses and consumers to rein in spending and investment.

Demand for goods in the chemicals (29.5), metals and mining (31.1) and household products (38.4) manufacturing sectors fell at the fastest rate in October. A Tracker reading below 50.0 indicates contraction. A reading above 50.0 indicates expansion.

Providers of software services was the only sector monitored to see increased demand (59.7) in October. As a result, the sector recorded the strongest output growth (60.0) of any sector, followed by food and drink (58.4). The food and drink sector also saw the slowest fall in demand (49.9) of any manufacturing sector.

Since July 2022, more than half of the UK sectors monitored by the Tracker have consistently reported falling output and demand, indicating that economic conditions have become worse in recent months.

Elsewhere, the Tracker found early signs of a labour market slowdown in the UK. Employment (52.4) rose at the slowest rate in 20 months in October, while the overall manufacturing sector recording its first drop in headcount since December 2020.

Relative to the previous month, four sectors (chemicals, metals and mining, household products and banks) recorded a decrease in staffing levels in October, the highest number since February 2021 and versus just one sector in September. Firms in these sectors said they chose not to replace workers because of lower customer demand or difficulty finding suitable replacements in a competitive jobs market.

Jeavon Lolay, Head of Economics and Market Insight at Lloyds Bank Corporate and Institutional Banking, said: “The indications from our report suggest that the UK economy may already be in recession. With both our domestic challenges and global headwinds unlikely to materially recede in the short term, the key question revolves around how long this downturn may last. However, it is worth highlighting that there are sectors and pockets of the economy that continue to perform well.

“The Autumn Statement laid bare the scale of the challenge ahead to repair the fiscal finances and restore growth. While the former inevitably necessitated some difficult decisions, the fact that fiscal and monetary policy are working together is clearly positive.”

Scott Barton, Managing Director, Lloyds Bank Corporate and Institutional Banking, added: “Businesses instinctively look closely at their capacity when demand declines. After working through backlogs, they assess whether or not they need to continue recruiting to meet new orders, which is at least part of the reason we saw the slowdown in employment growth in October.

“However, aligning recruitment plans to new orders can only go so far. Businesses must also forecast demand, which could prove particularly challenging for seasonal companies that are usually preparing for their busiest time of the year. Businesses should model for different scenarios to determine whether they have enough staff and cashflow to cover operations at various levels of capacity in the coming months. This will help them to build resilience in the face of another challenging period.”