Business activity growth at five-year high

Will Green is news editor of Supply Management
24 July 2020

Business activity in the UK has expanded at the fastest pace in five years, according to the latest flash PMI.

The IHS Markit/CIPS Flash UK Composite Output Index hit 57.1 in July, up on 47.7 in June and against the neutral reading of 50.

The index, based on 85% of usual monthly manufacturing and services PMI replies, has now risen for three months running after a record low of 13.8 in April.

Survey respondents referred to a gradual increase in activity following lockdown, helped by returns to work, the phased reopening of the wider economy, and reports that clients were taking a more long-term view of spending plans.

Services firms reported operating costs had risen due to Covid mitigation efforts, while those in manufacturing commented on a slow return to pre-outbreak output levels.

Employment numbers continued to fall sharply, with the rate of job shedding accelerating since June, and this was linked to subdued workloads and higher operating costs.

Duncan Brock, group director at CIPS, said: “Manufacturing led the way by putting in its best output growth performance since November 2017. With business unfettered by lockdown, optimism rose to its highest levels since September 2014 amongst manufacturers, with an injection of hope that the worst impact from the pandemic was over. The services sector painted a similar picture with the best performance in five years and a sudden improvement from last month.

“Amidst this brightening picture, there were some winners and losers. Some parts of the economy performed better than others, both through luck with being early to reopen and good adaptation in responding to the challenges of the pandemic. The biggest concern is that staffing levels remained disappointingly low across both sectors, as furlough schemes came to an end and redundancies started to appear.”

Chris Williamson, chief business economist at IHS Markit, said: “The surge in business activity in July will fuel expectations that the economy will return to growth in the third quarter after having suffered the sharpest contraction in modern history during the second quarter.

“However, while the recession looks to have been brief, the scars are likely to be deep. Even with the July rebound there’s a long way to go before the output lost to the pandemic is regained and, while businesses grew more optimistic about the year ahead, a V-shaped recovery is by no means assured.”

He added: “We remain very concerned about the extent to which the recovery could be smothered by a lack of post-Brexit trade deals.”

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