The downturn in UK economic activity eased sharply in June and “moved closer to stabilising” as further restrictions linked to the pandemic lifted and more businesses reopened. But companies continued to shed jobs as demand remains weak.
The IHS Markit/Cips flash, or interim, UK purchasing managers’ index for services rose to 47 in June from 29 in May. The reading is well above the 40 that was expected by economists polled by Reuters, but still below 50, which indicates a majority of businesses reporting a contraction in activity compared to the previous month.
It marks the largest month-on-month rise since records began in January 1998, “which highlighted a decisive shift in momentum”, the report stated.
“June’s PMI data add to signs that the economy looks likely to return to growth in the third quarter,” said Chris Williamson, chief business economist at IHS Markit. “June saw a record rise in the PMI for a second successive month, confirming that the economy is moving closer to stabilising after the worst of the immediate economic impact from the Covid-19 pandemic was felt back in April.”
The PMIs are not a measure of the extent to which economic activity has recovered relative to the pre-virus level and while they signal how broad-based the recovery is, they cannot measure its strength after a shock such as the lockdown.
Many analysts remain cautious about the speed of the broader recovery. “The UK PMIs have returned to more ‘normal’ levels,” said James Smith, economist at investment bank ING. “But judging by other measures of activity . . . we don’t expect a full recovery until 2022 at the earliest.”
The PMI index for manufacturing jumped to 50.1 in June from 40.7 in May and the composite PMI, an average of the two sectors, improved to 47.6 from 30.
“Though the index still remained below the no-change mark in June, its rise since May was a survey record, creating another signal that some bounceback has started to emerge following April’s historic lows,” said Duncan Brock, group director at the Chartered Institute of Purchasing and Supply (Cips). “This is just a beginning . . . as business spending remains flat and supply chains stutter into action.”
The manufacturing PMI data “was much better than expected by analysts, as is the case with most data released at present”, said Neil Birrell, chief investment officer at the asset management company Premier Miton. “The UK was lagging the rest of the world in the recovery, but this is encouraging.”
However, total new orders continued to decline in June, with manufacturers often commenting on shortages of new sales to replace completed contracts.
According to the report, concerns about the speed of recovery in customer demand weighed on employment numbers, with the latest survey indicating another sharp, albeit slower, drop in total staffing levels.
Businesses reported they had absorbed the extra costs of adapting to the new social distancing measures in order to restart operations. Coupled with subdued demand that led to widespread discounting, margins were squeezed across the private sector.
Among the service providers that reported a fall in employment, many commented that sharply reduced workloads “had meant redundancy measures were operating in tandem with furlough schemes”.
June’s composite PMI reading for the UK is in line with the 47.5 for the eurozone but below the 51.3 for France.
In April, the PMIs for the UK reached a survey-record low and despite June’s improvement they point to an unprecedented fall of economic output in the second quarter.
June’s flash PMI was based on data collected between June 12 and 19 and captured the reopening of non-essential shops on June 15. Flash PMI estimates are published one week before the final results and are based on about 85 per cent of the typical responses.
On Tuesday, the prime minister Boris Johnson is expected to announce if pubs and restaurants can reopen on July 4 — similar premises have been open for some weeks in most large European economies.
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Downturn in UK business activity eases sharply in June - Financial Times
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