Survey shows record rise in UK business activity in June | Economic recovery

Survey shows record rise in UK business activity in June | Economic recovery

Hopes of a rapid recovery in Britain’s economy from lockdown have been boosted by a health check showing a record rise in business activity in June.

The monthly survey from IHS Markit/CIPS found that UK manufacturing returned to growth this month while there was a modest contraction in activity in the much-bigger services sector.

On a day when the government is to announce a fresh easing of the Covid-19 restrictions imposed in March, IHS Markit/CIPS said the findings of the purchasing managers’ index pointed to the economy returning to growth in the third quarter of 2020.

IHS Markit/ CIPS said its flash composite output index – a measure of how services and manufacturing are performing – rose from 30 in May to 47.6 in June. A finding below 50 indicates a fall in activity, but the 17.6-point rise this month was the largest since the survey began in 1998.

The PMI for manufacturing, which makes up around 10% of the economy, rose from 40.7 in May to 50.1 in June, while services, which make up 80% of the economy’s output, rose from 29 to 47.

Despite the pick-up, the survey said demand remained weak and job losses were continuing to mount, albeit at a slower pace than in recent months. Evidence of the continued disruption caused by the pandemic was illustrated by the survey being based on only 85% of the normal replies.

Chris Williamson, the chief business economist at IHS Markit, said: “June’s PMI data add to signs that the economy looks likely return to growth in the third quarter, especially given the further planned easing of the lockdown from 4th July.

“June saw a record rise in the PMI for a second successive month, confirming that the economy is moving closer to stabilising after the worst of the immediate economic impact from the Covid-19 pandemic was felt back in April.”

Williamson added, however, that the economy’s longer-term recovery prospects remained highly uncertain. Some of the recent gains in the PMI reflected short-term bounces as businesses returned to work, but a steep decline in backlogs of orders and an ongoing fall in new orders pointed to weak demand.

“Many Covid-19 restrictions and social distancing measures will also need to stay in place until an effective treatment or vaccine is available, curbing demand in a variety of service sectors in particular”, Williamson said.

Thomas Pugh, UK economist at the consultancy Capital Economics, said: “Overall, the economy seems to be recovering a little quicker from its nadir in April than we had first expected. This trend should continue in July as bars, restaurants and cinemas will probably be able to open from 4 July and a reduction in the official social distancing measure from 2 metres to 1 metre would allow those firms that are open to serve significantly more customers.”

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