Carmakers lead UK economic growth in November as output accelerates

Car manufacture

The number of sectors in the UK economy that ramped up production in November reached its highest level in five months, according to a survey out today.

Seven out of the 14 sectors tracked by Lloyds Bank raised activity last month, up from four in the previous month. The increase signals that pockets of the UK are recovering before what is expected to be a better year for the economy.

Car manufacturers and auto parts makers saw output bounce back from contraction to grow at the fastest rate of any sector, while real estate companies notched the second biggest increase in output, driven by a reduction in mortgage rates that has raised demand for housing. Figures last week from Halifax revealed house prices climbed over the last month and were close to returning to growth on an annual basis.

Nikesh Sawjani, senior UK economist at Lloyds Bank, commercial banking, said: “November’s data points to bright spots and it is somewhat encouraging that more areas of the UK economy saw activity pick up on the month.”

It is the latest survey to indicate that the UK economy has been on the mend over the last couple of months, mainly owing to expectations that interest rates will fall over the year. Markets think the Bank of England will begin lowering borrowing costs from their current level of 5.25 per cent by the middle of next year.

The latest purchasing managers’ index for the services sector topped the 50-point threshold that separates growth from contraction, while Lloyds’ separate business barometer survey reached it highest point in nearly two years.

There is hope that official GDP estimates from the Office for National Statistics for the final quarter this year will reveal that the economy returned to growth. Over the three months to September, GDP stalled.

However, according to the Lloyds report, half of the sectors cut production last month. It also cast a downbeat note on the prospects for future business conditions.

“Eleven of the 14 sectors reported declining demand as measured by new orders,” the report read, adding that, for the first time since June 2020, when the UK was in lockdown, every sector ran down work backlogs to support output.

An overreliance on tackling backlogs of work suggests that there is not enough incoming business to replenish activity. Just three sectors said new orders increased last month.

Sawjani added: “Businesses can’t run on outstanding work alone, and if they’re relying on backlogs to maintain activity now, we could eventually see their output fall when these jobs are exhausted.”

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Companies continued to trim staffing levels in November in anticipation of softer market conditions.

Lloyds said: “Seven sectors increased their workforce numbers in November, one more than in October, though overall the tracker’s composite measure of employment showed headcount levels edged down across the economy in November.”