Overall UK economy
Post Brexit and with the vaccination programme having a positive effect on Covid hospitalisations, it is time to review the UK textile sector.
The UK economy is in the midst of a sharp but unbalanced recovery, easing of lockdown restrictions continued albeit diminishing fiscal support that allowed a faster than anticipated recovery, with the UK expected to remain at about 4 per cent of its pre-pandemic trajectory, still equivalent to a large recession. Demand has exceeded supply in many sectors but is still lagging in others.
As the economy reconfigures, there is likely a stronger link than normal between the speed and ultimate scale of the recovery. A faster recovery could see Covid-related scarring (i.e the permanent economic damage done by the pandemic) limited to just 1–1.5 per cent of GDP, versus 3 per cent under the OBR’s March 2021 scenario.1
Inflation appears to be the biggest concern for the UK economy at present, with annual Consumer Price Index (CPI) growth forecast to peak at 4.6 per cent in April 2022.2
If inflation expectations become embedded, firms may be willing to accept higher wages and offer higher prices – creating the potential for a genuine wage price spiral, which may cause pressure on margins and cost prices.
The November 2021 Bank of England Monetary Review is expected to recommend a modest interest rate rise, from their current all-time low of 0.1 per cent to 1.0 per cent by end of 2022.
The economic recovery – both in the UK and globally – will likely hinge on the labour market. In the UK, the furlough scheme has preserved large parts of the ‘old’ economy, even as demand has rebounded in a very different form: sales have shifted across sectors at a much faster rate than has employment.
As support is wound down, many experts expect UK unemployment to peak at 5.5 per cent in the first quarter of 2022.
The pandemic is not over globally, but economies have become more resilient and vaccination campaigns have reduced the likelihood of significant future lockdowns. The outlook for global growth has thus improved: Citi now project 5.8 per cent growth globally for 2021 .3
The key challenge is turning the initial rebound into a fuller and more complete recovery – though for the rest of 2021 at least, supply constraints will continue to weigh on growth momentum. One pressing issue for policymakers is ensuring that the reserves built up by households and companies during the pandemic are put to productive economic use, rather than just pushing up asset prices.
The number of UK job vacancies in July-September 2021 was a record high of 1.1 million, the second consecutive month the 3-month average has risen over one million.4
Commodity prices
The UK is going through a mini crisis on energy, a major cost for textile processing,
There has been a global squeeze on gas and energy supply, due to:
1. A cold winter in Europe last year put pressure on supplies and, as a result, stored gas levels are much lower than normal
2.Increased demand from Asia - especially China - for liquefied natural gas.
3.There are additional reasons why the UK is harder hit:
O The UK is one of Europe's biggest users of natural gas - 85 per cent of homes use gas central heating, and it also generates a third of the country's electricity.
O Supplies of renewable energy are reduced because it's been the least windy summer since 1961.
O A recent fire at a National Grid site in Kent closed a power cable supplying electricity from France.
O The UK has less gas storage than many other EU countries.
O Nine smaller UK energy providers have gone bust in UK since start of September 21.
Supply chain
Internally the UK has a shortage of HGV drivers, caused by an exodus of non-UK drivers post Brexit, long standing poor pay rates and career prospects in the sector plus a delay in processing applications for new HGV licences and high entry costs for new drivers.
Trade unions have recently been consulting over a mass walkout with supermarket and delivery drivers.
The UK government has agreed to a relaxation in the “cabotage” rules which currently limits EU-based companies to making a maximum of two trips in the UK within a week.
Currently, large shipping groups such as Maersk and MSC are concerned by the build-up of containers at Felixstowe, the UK’s largest container port, and some vessels are having to divert to continental ports and load onto smaller craft to access other UK ports.
K, one of the world’s largest freight forwarders said that it was taking 10 to 14 days to move stock from Felixstowe to depots and storage locations were heavily congested.
UK Consumer confidence:
The United Kingdom’s GfK Consumer Confidence index declined to -13 in September of 2021 from -8 in the previous month, below market expectations of -8. It was the lowest reading since April and the biggest monthly drop since October 2020 amid growing worries over energy bills, food costs and tax hikes.
"All measures have declined this month and consumers are clearly worrying about their personal financial situation and the wider economic prospects for the year ahead," said Joe Staton, client strategy director at GfK. 5
Conclusion:
The UK is in an uncertain place at the moment, Covid concerns, fiscal uncertainty, an ever-changing post Brexit trading landscape and a work culture which has fundamentally shifted from office based to working from home for many.
Working from home combined with ever increasing house purchase prices is fuelling a boom in home improvement for many UK consumers. The UK home improvement sector continued to grow at a rate of 16 per cent during lockdown . 6
This growth will drive demand for household textiles both through retail and on-line purchases.
The UK technical textile sector faces a number of issues:
Continuing growth in new construction projects is a positive for the sector, however, many of the primary components for construction, steel and timber are in global short supply and this will have a knock-on effect to insulation materials and internal fittings where textiles are used, as until the primary structures are in place much of the second fit cannot occur.
Reduced UK car production with output declining by 37.6 per cent in July 2021 with 53,438 units made, has affected demand for nonwoven textiles . 7
The UK renewable energy sector continues to grow 8 , this will generate on-going demand for composite materials for turbine blades and ancillary equipment.
However, ongoing uncertainty about commodity pricing will affect margins in high energy consuming business such as coating, printing and dyeing.
The UK apparel market will continue to be affected by several factors:
Continued low levels of consumer confidence, with a third wave of Covid lockdowns being discussed for winter 21/22.
Upcoming potential budget changes to tax and VAT due November 21.
Projected mild 21/22 winter which may skew buying patterns and affect stock levels for retailers.
Supply chain issues may negatively affect bulk order deliveries from off-shore locations, and this may push retailers to develop “near-shore” locations in Central Europe and UK based “fast-response” manufacturing to replenish fast selling lines and have certainty of supply.
Potential “panic buying” if supply chain issues continue.
Increasing consumer awareness on ethical issues/trackability of supply.
End of Government support scheme through furlough, which could cause smaller companies to go bust.
During Covid, consumer expenditure was subdued, and “savings” were at a record level 9 this reserve may be spent at some point. Covid concerns are still affecting holiday bookings and with Christmas approaching, consumers may be tempted to spend on non-essential items.
Reference
1 OBR: Office for Budgetary Responsibility Sept 21
2 ONS: Office for National Statistics Oct 21
3 CITI: City Group Inc
4 ONS Sept 21
5GFK: Growth from Knowledge
6Mintel: Sept 21
7Source: SMMT Oct 21
8UK Govt: Dept for Business, Energy and Industrial Strategy Sept21
9Bank of England Nov 2020
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