IHS Markit / CIPS Flash UK Composite PMI®
Including IHS Markit / CIPS Flash UK Manufacturing and Services PMI®
- Flash UK Composite Output Index Dec: 50.7, 2-month high (Nov final: 49.0)
- Flash UK Services Business Activity Index Dec: 49.9, 2-month high (Nov final: 47.6)
- Flash UK Manufacturing Output Index Dec: 55.3, 6-month low (Nov final: 56.7)
- Flash UK Manufacturing PMI Dec: 57.3, 37-month high (Nov final: 55.6)
December data highlighted a marginal expansion of UK private sector output, driven by another solid increase in manufacturing production. In contrast, overall levels of service sector activity stagnated at the end of 2020, largely due to ongoing coronavirus disease 2019 (COVID-19) restrictions on hospitality, leisure and travel businesses.
The latest survey also indicated severe pressure on manufacturing supply chains, which was overwhelmingly linked to freight delays following congestion at UK ports. Around 45% of the survey panel reported longer wait times from suppliers, while only 2% saw an improvement. The lengthening of lead times in December was the third-steepest since the survey began in 1992, exceeded only by those seen amid COVID-19 shutdowns in April and May. Shortages of critical inputs, alongside pressure on capacity following forward-purchasing by clients ahead of Brexit, contributed to the sharpest rise in backlogs of work across the manufacturing sector since May 2010.
At 50.7 in December, the seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – was up from 49.0 in November and back above the crucial 50.0 no-change mark. However, the latest reading signalled only a slight rise in private sector output and the rate of growth was slower than seen from July to October 2020. A relatively subdued service sector performance (49.9) continued to hold back the recovery, while manufacturing production was firmly in growth territory (55.3).
Total new business volumes stagnated across the UK private sector as a whole in December, with manufacturing growth offset by a sustained downturn in the service economy. Survey respondents Comment often cited restrictions on consumer-facing businesses, while others noted delays to new projects amid heightened economic uncertainty.
A robust and accelerated rise in input prices added to pressure on UK private sector firms during December. The latest increase in average cost burdens was led by the steepest rate of manufacturing sector input price inflation for two-and-a-half years.
On a more positive note, there were signs of stabilisation in employment numbers after the steep cuts seen since the start of the pandemic. The rate of job shedding across the UK private sector was the slowest for 10 months in December.
Meanwhile, business optimism about the year ahead outlook eased only slightly since November and meanwhile remained much stronger than seen from March to October 2020. Confidence was mostly attributed to favourable news about vaccine roll-outs and hopes of a return to more normal trading conditions, although a number of customer-facing service providers also commented on severe concerns about the near-term outlook.
IHS Markit / CIPS Flash UK Manufacturing PMI®
The seasonally adjusted IHS Markit/CIPS Flash UK Manufacturing Purchasing Managers’ Index® (PMI®) – a composite single-figure indicator of manufacturing performance – registered 57.3 in December, up from 55.6 in November and the highest since November 2017.
While output growth eased to a six-month low, the remaining four PMI sub-components all helped to lift the headline index from the level seen in November. New orders expanded at the fastest pace since August, supported by a temporary boost to purchasing ahead of the Brexit deadline, while stocks of purchases were accumulated to the greatest extent since April 2019. A slower rate of job shedding and a faster lengthening of supplier lead times also contributed to a rise in the headline PMI in December.
Input buying across the manufacturing sector increased at the strongest pace since August 2013, reflecting efforts to boost inventories and meet higher levels of customer demand. A combination of stretched supply chain capacity, the need to source alternative vendors and rising commodity prices resulted in the steepest rate of cost inflation since June 2018.
In some cases, manufacturers noted that supply chain difficulties had restricted their production volumes in December. This contributed to a rise in unfinished work across the manufacturing sector for only the second time in the past three years.
IHS Markit / CIPS Flash UK Services PMI®
At 49.9 in December, the seasonally adjusted IHS Markit/CIPS Flash UK Services PMI® Business Activity Index rose from a five-month low of 47.6 in November but remained fractionally below the neutral 50.0 threshold. While some service providers noted a rise in activity following an easing of lockdown measures, there were still widespread reports that COVID-19 restrictions had either reduced customer demand or even led to ongoing business closures.
New business volumes dropped for the third month running in December. However, staffing levels were cut at the slowest pace since the downturn began in March. A number of survey respondents commented that hopes of a rebound in business activity in the next 12 months, alongside the use of furlough schemes, had encouraged them to retain staff where possible.
Chris Williamson, Chief Business Economist at IHS Markit, said: "The UK economy returned to growth in December after the lockdown-driven downturn seen in November, adding to signs that the hit to the economy from the second wave of virus infections has so far been far less harsh than the first wave in the spring.
"The recovery lacked vigour, however, as the service sector remained under particular strain, contracting marginally again as ongoing social distancing measures due to tiered lockdowns continued to hit many parts of the economy. Consumer-facing services, notably hotels, restaurants and tourism, reported further marked declines in output, largely offsetting renewed growth in business services, transportation and manufacturing.
"The manufacturing and transport sector improvements were linked to reviving global trade and a temporary boost from Brexit-related stockpiling, which reportedly buoyed order books and exports during the month. "While job losses continued to be reported during the month, it was encouraging to see the rate of job cutting ease to the lowest since the start of the pandemic. Business optimism about the year ahead also remained buoyant, reflecting the light at the end of the tunnel created by the roll-out of the COVID-19 vaccines. Optimism waned slightly compared to November, however, largely due to rising concerns over a no-deal Brexit."
Duncan Brock, Group Director at CIPS, said: "Job shedding was reduced this month to the slowest rate the pandemic began as optimism was maintained across manufacturing and services sectors about operating conditions in 12 months’ time. However in the near-term supply chain managers identified some serious obstacles that could impede further progress and pull the sectors into recession again.
"Though manufacturing was buoyed up by Brexit panicbuying and saw the fastest rise in purchasing since August 2013, delivery times increased at the third highest rate since 1992 which meant many essential materials were not getting through. Manufacturing companies were also paying the price of goods shortages with the highest rise in cost inflation since June 2018 as shipping and commodity prices soared.
"In services the watchword was ‘wait.’ Clients delayed placing orders as potential Brexit disruption loomed large and more lockdowns restricted footfall in consumer-facing businesses resulting in new orders dropping for the third month in a row. As covid worries and no-deal uncertainty remains, firms will continue to face the most challenging business conditions in a generation for the next few months."