Sharpest fall in UK private sector output since May. Manufacturing growth offset by renewed downturn in services

CIPS 23 November 2020

Survey respondents also commented on rising demand from export markets, especially in China and the EU.

IHS Markit / CIPS Flash UK Composite PMI®

Including IHS Markit / CIPS Flash UK Manufacturing and Services PMI®

- Flash UK Composite Output Index Nov: 47.4, 6-month low (Oct final: 52.1)

- Flash UK Services Business Activity Index Nov: 45.8, 6-month low (Oct final: 51.4)

- Flash UK Manufacturing Output Index Nov: 56.3, 2-month high (Oct final: 55.8)

- Flash UK Manufacturing PMI Nov: 55.2, 3-month high (Oct final: 53.7)

Business activity across the UK private sector decreased in November, which ended a four-month period of expansion. The downturn was driven by the fastest reduction in service sector output since May amid temporary business closures among leisure and hospitality companies. In contrast, manufacturing production expanded at a robust pace during November and the rate of growth accelerated since the previous month. The latest manufacturing PMI survey nonetheless pointed to a sharp lengthening of supplier delivery times amid severe delays at UK ports, alongside a robust degree of stock building as manufacturers sought to accumulate critical inputs before the end of the Brexit transition period on 31st December 2020.

Adjusted for seasonal influences, the IHS Markit / CIPS Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – dropped from 52.1 in October to 47.4 in November and pointed to the sharpest downturn in overall business activity since May. The underperformance of the service economy (45.8) relative to the manufacturing sector (56.3) was the widest in almost 25 years of data collection, reflecting the severe impact on business activity from a second lockdown in England and tightened COVID-19 restrictions across the rest of the UK.

Manufacturing growth was mainly linked to a sustained recovery in production volumes after stoppages at the start of the pandemic. Survey respondents also commented on rising demand from export markets, especially in China and the EU. The latter was often linked to pre-purchasing due to Brexit uncertainty as European customers sought delivery of orders before the end of the transition period.

Total new work received by UK private sector firms decreased Comment for the second month running in November. Another fall in new business across the service economy more than offset a solid improvement in order books in the manufacturing sector. Backlogs of work decreased at the fastest pace since June amid shrinking demand and a lack of pressure on business capacity.

November data indicated that job shedding accelerated across the UK private sector, with the rate of decline in staffing numbers the steepest for three months. Lower employment was mainly attributed to redundancy measures, although some service providers also commented on the renewed use of the government furlough scheme during the latest survey period.

Looking ahead, private sector companies remain optimistic that business activity will increase during the next 12 months. The degree of optimism improved since October and was the strongest since March 2015. While some firms simply commented on an expected rebound from low levels of activity in November, there were also widespread reports that hopes of an end to COVID-19 restrictions and positive vaccine news had spurred business confidence about the year ahead.

IHS Markit / CIPS Flash UK Manufacturing PMI®

At 55.2 in November, the seasonally adjusted IHS Markit/CIPS Flash UK Manufacturing Purchasing Managers’ Index® (PMI®) – a composite single-figure indicator of manufacturing performance – was up from 53.7 in October and the highest since August.

At 55.2 in November, the seasonally adjusted IHS Markit/CIPS Flash UK Manufacturing Purchasing Managers’ Index® (PMI®) – a composite single-figure indicator of manufacturing performance – was up from 53.7 in October and the highest since August.

A robust rise in purchasing activity contributed to the sharpest lengthening of suppliers' delivery times since June. Around 32% of the survey panel reported longer lead times from suppliers, while only 2% noted an improvement. Worsening supplier performance was widely linked to shipping delays amid bottlenecks at UK ports. Rising freight costs and stretched supply chains contributed to the strongest rate of overall input price inflation for two years.

Export sales were a bright spot in November, with the latest increase the fastest since January 2018. However, the overall rate of new order growth eased since October, suggesting a weaker contribution from domestic demand.

IHS Markit / CIPS Flash UK Services PMI®

The seasonally adjusted IHS Markit/CIPS Flash UK Services PMI® Business Activity Index posted 45.8 in November, down sharply from 51.4 in October and below the neutral 50.0 mark for the first time since June.

Around 31% of the survey panel reported lower business activity in November, while only 21% signalled an expansion. Reduced output was almost exclusively attributed to greater restrictions on trade due to the COVID-19 pandemic and heavily concentrated in consumer-facing parts of the service economy.

Meanwhile, the rate of job shedding across the service sector accelerated to its fastest since August. Around three times as many survey respondents (27%) reported a decline in employment as those that indicated a rise during November (9%).

Chris Williamson, Chief Business Economist at IHS Markit, said: "A double-dip is indicated by the November survey data, with lockdown measures once again causing business activity to collapse across large swathes of the economy. As expected, hospitality businesses have been the hardest hit, with hotels, bars, restaurants and other consumer facing service providers reporting the steepest downturns.

"Some comfort comes from the data suggesting that the impact of the lockdown has not been as severe as in the spring, and manufacturing has also received a significant boost from inventory building and a surge in exports ahead of the UK’s departure from the EU at the end of the year, providing a fillip for many companies. However, while the lockdown will be temporary, so too will this pre-Brexit boost.

"The health of the economy in the new year therefore remains highly uncertain, but it is very encouraging to see the survey’s gauge of business optimism surge higher in November. Improved prospects for the year ahead are thanks mainly to the news of successful vaccine trials, which at last provides a light at the end of the tunnel for many businesses."

Duncan Brock, Group Director at CIPS, said: "With the biggest drop in private sector output since May, the end of the year unveils the different fates of the manufacturing and services sector as a result of continuing covid restrictions. Where manufacturing had a flat out month with the highest level of growth since September, the dominant services sector took another sudden tumble into contraction territory, resulting in deeps concerns for the health of the UK economy.

"Manufacturing’s fortunes were fuelled by a rise in both domestic and export orders driven by forward-buying strategies to beat the approaching Brexit deadline. However, the flipside of this surge in activity was the sudden increase in delivery times, as supply chain snags in the form of shipping delays and UK port disruption offered both a glimpse into the coming months and contributed to the strongest cost inflation since 2018.

"News of potential vaccines bringing a return to normality lifted the mood with a big rise in optimism to its highest since March 2015. But in the meantime with service businesses still shedding jobs at a head-spinning rate, the New Year will be difficult as another recession waits on the doorstep."

Trudy Salandiak

Corporate Communications

CIPS T: +44-1780-761-576

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