UK Food and Drink Sector bucks trend as pandemic sees international trade fall in Q1

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Food and drink businesses defied an overall drop in UK exports during the first quarter of 2020 as supply chain disruption and international efforts to combat coronavirus hit overseas sales of goods and services, according to the Lloyds Bank International Trade Index.

The Index, compiled in partnership with IHS Markit saw UK manufacturing exports fall for the fourth quarter in a row between January and March, at 46.8 for new manufacturing exports in Q1, down from 47.9 in Q4 2019. The sharpest drop occurred in March, when the Index dropped from 47.8 in February to 43 in March – the fastest monthly downturn since 2012.

Food and drink was the only manufacturing sub-sector to buck this trend, with exports growing for the first time since Q2 2019 between January and March to 50.5.

The sector’s performance was underpinned by strong demand in key export markets, such as the USA and Ireland, and the easing of global trade tensions from 2019, when higher US trade tariffs on European products, such as whisky, wine and cheese and uncertainty over the UK’s departure from the EU caused UK food and drink exports to fall.

In March, UK manufacturers experienced delivery delays and reduced availability of key inputs on an unprecedented scale since 1998, with a supply chain pressure reading of 33.

Historic lows for UK services exports

Meanwhile, in Q1 2020 UK services businesses saw the sharpest quarterly drop in new overseas work since the Index began in 2014 at 42.7 down from 46.5 in Q4 2020. The fall was driven by a slump in international travel, with services exports related to transport (39.9) and hospitality and leisure (11.8) most acutely affected.

Financial services, however, outperformed the sector at large during the first quarter of this year with a reading of 51.5, with new business from overseas increasing at the fastest rate since Q3 2019. Firms surveyed attributed this growth to greater clarity over the UK’s departure from the EU, but some said international clients were still delaying spending decisions due to coronavirus.

Global economy contracting, early signs of Chinese recovery

he International Trade Index also noted the end of a seven-year run of global economic expansion during the first quarter of 2020 at 45.8 in Q1 2020, down from 50.3 in Q4 2019.

The Index reading for March alone was 37.3, showing the impact of emergency measures to combat coronavirus on demand for UK exports in key markets.

However, after posting a reading of 27.5 in February, mainland China jumped to 46.7 in March – indicating early signs of renewed demand for UK exports as the country’s lockdown restrictions eased.

Gwynne Master, managing director and global head of trade for Lloyds Bank Global Transaction Banking, comments: “The China shutdown sent shudders through the global economy and complex global supply chains, with an unprecedented knock-on impact for UK exporters. Performance and good growth levels in the UK food and drink sector as well as the financial services industry in Q1 are sources of encouragement.

“It is reassuring that China, one of the first major economies to gradually return to work, is showing signs of an economic recovery.”

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