Services and manufacturing expand as economy reopens

Will Green is news editor of Supply Management
24 August 2020

August saw the sharpest rise in business activity since October 2013, according to the latest flash PMI.

The IHS Markit/CIPS Flash UK Composite Output Index hit 60.3 in August, up on 57 in July and against the no-change reading of 50, linked to reopening among corporate customers and greater willingness to spend among households.

The index – based on 85% of typical monthly replies from the manufacturing and services Purchasing Managers’ Indexes – showed total volumes of new work expanded for the second month running.

However, concerns about the speed and duration of the recovery resulted in sustained job cuts, with the fastest decline in employment numbers since May.

Average cost burdens increased at a solid pace in August, though the rate of inflation eased on the previous month. Respondents noted higher fuel bills and rising costs for imported items.

Duncan Brock, group director at CIPS, said: “As the UK heads for the deepest recession in living memory, any celebration is premature as firms moved from the protection of furlough schemes to the harsh reality of job shedding with employment levels declining at their fastest since May.

“Reducing headcount was a quick fix for many firms struggling to maintain strong supply chains and their position in the marketplace amidst higher raw material and import costs.”

Tim Moore, economics director at IHS Markit, said: “Positive signals for the recovery of course need to be considered in the context of UK GDP shrinking by around one fifth during the second quarter of the year.

“Survey respondents often noted that it could take more than a year to return output to pre-pandemic levels and there were widespread concerns that the honeymoon period for growth may begin to fade through the autumn months.”

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