IHS Markit / CIPS Flash UK Composite PMI®
Including IHS Markit / CIPS Flash UK Manufacturing and Services PMI
- Flash UK Composite Output Index Feb: 49.8, 2-month high (Jan final: 41.2)
- Flash UK Services Business Activity Index Feb: 49.7, 4-month high (Jan final: 39.5)
- Flash UK Manufacturing Output Index Feb: 50.5, 9-month low (Jan final: 50.7)
- Flash UK Manufacturing PMI Feb: 54.9, 2-month high (Jan final: 54.1)
February data indicated only a fractional decline in UK private sector output, which contrasted with the sharp reduction seen at the start of the national lockdown in January. This largely reflected a near-stabilisation in service activity during the latest survey period. Manufacturing production continued to expand in February, but the rate of growth was only marginal and the weakest since the recovery began in June 2020.
Manufacturing companies often cited severe supply chain disruptions as a factor holding back production volumes. This was attributed to international shipping delays, strong worldwide demand for raw materials and Brexit-related trade frictions. Around 58% of the survey panel reported longer delivery times from suppliers, while only 2% saw an improvement in February. The scale of the downturn in vendor performance was the second-largest since the survey began in 1992 (exceeded only by those seen in April 2020).
At 49.8 in February, up from 41.2 in January, the headline seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index was close to the 50.0 no-change threshold. As a result, the flash reading in February – which is based on approximately 85% of usual monthly replies – signalled broadly stable levels of UK private sector output in comparison to those seen during January.
Service sector activity remained severely impacted by the coronavirus disease 2019 (COVID-19) pandemic in February, with output levels suppressed due to tight restrictions on travel, leisure and hospitality. Moreover, some manufacturers commented on weaker sales volumes due to temporary closures among clients in the consumer services sector, especially hospitality businesses.
February data indicated a slight reduction in total new work received by UK private sector companies, which extended the current period of decline to five consecutive months. The latest survey suggested that export sales underperformed domestic orders for the first time since September 2020, which mostly reflected a downturn in new work from abroad among manufacturing companies.
Staffing levels showed signs of stabilisation during February as private sector employment decreased at the slowest rate since the downturn began in March 2020. Service providers indicated a much slower pace of job shedding in comparison to January, while manufacturers reported another marginal increase in payroll numbers. Survey respondents noted that hopes of a rebound in customer demand after the national lockdown had boosted their appetite to retain staff and accelerate investment plans.
Business expectations for the next 12 months picked up in February and were the highest since April 2014. This reflected stronger contributions from both manufacturing and services. Optimism was almost exclusively attributed to an expected economic rebound in the wake of the successful UK vaccine rollout. However, there were still many reports citing concerns about the long-term impact of Brexit on business operations.
The latest survey indicated that cost pressures intensified across the UK private sector during February. The rate of input price inflation accelerated to its fastest since January 2019, which contributed to the strongest increase in average prices charged for exactly one year.
IHS Markit / CIPS Flash UK Manufacturing PMI®
The headline seasonally adjusted IHS Markit/CIPS Flash UK Manufacturing Purchasing Managers’ Index® (PMI®) – a composite single-figure indicator of manufacturing performance – posted 54.9 in February, up from 54.1 in January and well above the neutral 50.0 mark. This was helped by a return to new order growth during the latest survey period. Slightly slower rates of output and employment growth weighed on the headline PMI in February.
Export sales remained a weak spot across the manufacturing sector, with this index posting below the 50.0 no-change mark for the second month running. Survey respondents widely commented on difficulties fulfilling orders to existing clients in the EU due to higher costs and transportation delays.
Stretched supply chain capacity meanwhile contributed to another rapid lengthening of lead times for the receipt of raw materials in February. Manufacturers often noted that stock shortages among suppliers held back factory production and led to the sharpest rise in input prices since January 2017.
IHS Markit / CIPS Flash UK Services PMI®
February data pointed to a near-stabilisation in service sector output levels after the slump in activity at the start of 2021. At 49.7, up from 39.5 in January, the seasonally adjusted IHS Markit/CIPS Flash UK Services PMI® Business Activity Index signalled the softest rate of decline since the current phase of contraction began in November 2020.
New order volumes and employment numbers decreased only marginally during February. Moreover, service providers expressed optimism that pent up demand would lead to a swift rebound in sales after the national lockdown period ends. The degree of positivity about the year ahead business outlook improved again in February and was the strongest since September 2009.
Chris Williamson, Chief Business Economist at IHS Markit, said: “The UK economy showed welcome signs of steadying in February after the severe slump seen in January, albeit with business activity remaining sharply lower than late-last year due mainly to the ongoing national lockdown.
"Although the hospitality sector, including hotels and restaurants, reported a further steep decline, as did the transport and travel sector, rates of contraction eased considerably. Business and financial services companies meanwhile recovered to register modest expansions, helping the hard-hit service sector to come close to stabilising.
"In contrast, the manufacturing sector’s performance worsened amid escalating Brexit-related export losses and supply chain disruptions. More than half of all companies reporting lower exports attributed to the decline to Brexitrelated factors. Brexit was also the most commonly cited cause of supply delays.
"More encouragingly, although the data hint at a renewed contraction of the economy in the first quarter, business expectations for the year ahead improved to the highest for almost seven years, suggesting the economy is poised for recovery. Confidence continued to be lifted by hopes that the vaccine roll-out will allow virus related restrictions to ease, outweighing concerns among many other firms of the potential further damaging impact of Brexit-related trading issues.”
Duncan Brock, Group Director at CIPS, said: “February saw some of the worst supply chain disruptions since records began in the early 1990s, only surpassed by those reported in April last year as the pandemic first hit. Manufacturers were affected the most, as production in some cases was halted due to shortages in shipping and raw materials and many services businesses remained in a lockdown stranglehold unable to operate.
"New orders across private sector businesses declined for the fifth month in a row and export orders were a major drag on sales in February as customs disruptions and port delays encouraged EU businesses especially to look elsewhere. UK firms however remained resolute that things can only get better as optimism rose to the highest levels since April 2014, fuelled by hopes of a vaccine-driven revival. This is in spite of intensified marketplace competition along with the biggest rise in input prices since January 2019.
"On the face of it, a modicum of stability has returned to private sector business activity this month, but with small pockets of growth rather than any signs of a spectacular rebound. Digging a little deeper into the survey unearths some worrying trends that could shake the faith of even the strongest optimists in the next few months. Covid disruption has concealed the impact of Brexit on the UK economy and is still to be fully understood or managed, and pervasive supply chain upheaval is therefore a mounting risk for the speed of recovery."
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