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Dun & Bradstreet Q2 UK industry report insights

by Mark Fitt Political Journalist
23rd Aug 19 6:40 am

UK Q2 industry report: Retail

Dun & Bradstreet’s Q2 UK Industry report has revealed that retailers continued to face a challenging business environment throughout the first half of the year. Between falling year-on-year sales, as reported by both the BRC and ONS, and a growing number of vacant stores, retailers are feeling the brunt of consumer uncertainty, particularly surrounding the political and economic uncertainty in relation to the ongoing Brexit crisis – leading to a decrease in purchases of big ticket items such as cars, with registrations down in 2017, 2018 and Jan-May 2019. In spite of this, online retail sales continue to go from strength-to-strength, increasing from 4.2% in January 2008 to 18.2% in June 2019. This trend is likely to continue over the next few years, adding to the difficult conditions retailers are facing. Also worryingly, rising wages, higher fuel costs and more difficult access to credit also set to create problems for retailers in the long term.

Despite these challenges, however, the number of retail liquidations fell in Q2. Compared against 2018, numbers decreased by 6.8%, while in comparison to Q1, the number of liquidations went down by 10.7%. This comes after stark increases in previous quarters. Although retail liquidations currently account for less than a tenth of all corporate liquidations in the UK (382 out of 4,115), they attract a large amount of media attention, such as when House of Fraser and Debenhams reported further financial trouble, which eventually led to the latter going into administration in early April 2019. This, in turn, impacts consumer confidence. Finally, retail prompt payments to suppliers and partners were at 36.6% in Q2, up from 35.5% in Q1, signalling a slight increase in on-time payments as retailers work to pay off outstanding credit as they brace for the impact of a no-deal Brexit.

Markus Kuger, Chief Economist at Dun & Bradstreet said, “In light of the challenging retail environment, we would recommend monitoring the retail sector closely: it is still experiencing a high level of stress as consumer patterns are shifting, while supply chains could become endangered amidst Brexit. Although the latest ONS results for July indicate that sales increased slightly, the overall picture is that sales are dipping year-on-year, as consumer confidence continues to drop. Another by-product of the decline of the high street is that commercial property landlords could face an uncertain future, with the oversupply of retail space in town centres potentially driving rents down in the medium run. Ultimately until the UK has clarity on Brexit, many of these concerns will remain until, and potentially after, October.”

UK Q2 industry report: Manufacturing

Global manufacturing is still adjusting to recent disruptions in the sector, according to Dun & Bradstreet’s latest Q2 UK Industry report. The company expects slowdowns in fixed investment and manufacturing to continue into 2020, despite services sectors and job markets remaining stable. The report found that macroeconomic tensions between the US and China have continued to impact manufacturing performance on a global scale. Private consumption in the US had 4.3% growth quarter-on-quarter in contrast with an 8.0% year-on-year fall in Chinese goods imports between May and June.

The manufacturing sector has also seen a minimal increase in its prompt payments this quarter of 0.9 percentage points, with only 27.9% of all bills paid on time in the machinery manufacturing sector. Positively however, a total of seven out of 14 sectors recorded a decrease in the number of corporate liquidations in Q2. Machinery manufacturing saw a 15% drop quarter-on-quarter, reversing a comparable increase that was seen in Q1.

Kuger said, “Given the uncertainty in manufacturing, due to the ongoing tensions between the US and China, industry leaders are still adjusting to its disruption on global trade. While last year emission scandal was the key disruptor in the sector, the unpredictability of the trade war has been the biggest problem this year for manufacturers. Despite the small increase in prompt payments for machine manufacturing our data shows that manufacturers are still struggling to adapt to the tough conditions they are working in. Continued uncertainty around the trade war, as well as the upcoming Brexit deadline, diminishes the chances of improvement in global manufacturing growth in the next quarter which will depend on stable, global financial conditions.”

UK Q2 industry report: Construction

Dun & Bradstreet’s Q2 UK Industry report reveals that the construction sector is struggling under the uncertainty of the UK’s political and economic outlook. In particular, Q2 saw a rise in the number of construction businesses failing, increasing quarter-on-quarter by 4.8%, and year-on-year by 4.4%. Overall, 718 construction companies were liquidated between April and June. Worse, the construction sector as a whole is cooling; June saw the steepest drop in construction sector output since April 2009, with all three sub-categories (residential, civil engineering, and construction) reporting a decline in output, with the fall in house-building being the biggest in three years. Commercial building work has now been falling for half a year, and is the worst-performing area of construction activity.

Kuger said, “This is a worrying outlook for the construction sector, which is of great importance to the UK economy, supporting 2.9m jobs and contributing around £90bn in gross value added. While ONS data has shown that new orders in the construction sector fell in 2018, Q1 2019 did see an increase; however the uncertainty around Brexit has triggered many delays in building works. We would recommend watching any growth or decline in the sector closely, as it can be a helpful indicator of overall confidence in the UK economy.”

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