UK private sector output growth hits five-year high | Business

UK private sector output growth hits five-year high | Business

UK private sector business activity grew at the fastest pace in five years this month as the easing of the lockdown brought the economy back to life.

After the sharpest contraction in modern history during April, May and June, the economy returned to growth in July as pent-up demand from consumers and business customers led to a jump in sales and began to fill order books.

The IHS Markit flash UK Composite Output Index hit 57.1 – a 61-month high – up from 47.7 in June. A reading above 50 indicates expansion.

Manufacturing production led the way after it surged in July to give an index reading of 59.8 but the industry reported that while factories boosted production, output levels remained below pre-coronavirus levels and employment was likely to remain depressed.

Chris Williamson, the chief business economist at IHS Markit, said the poor jobs outlook also affected the services industry, which accounts for about three-quarters of economic activity and has some of the worst-affected sectors, including hospitality and leisure.

He said the rate of job shedding accelerated in July in response to “subdued workloads and higher operating costs”.

Many firms reported that the cost of doing business had increased in response to rules about physical distancing and health and safety concerns, and these extra bills were forcing them to make staff redundant.

Williamson said: “The UK economy started the third quarter on a strong footing as business continued to reopen doors after the Covid-19 lockdown. 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.”

New orders showed only a relatively small rise in July, he said, indicating that demand for products and services remains low at many firms.

“Furthermore, not only do many consumer-facing businesses remain especially hard-hit by the pandemic and ongoing social distancing, we remain very concerned about the extent to which the recovery could be smothered by a lack of post-Brexit trade deals,” he said.

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“July’s PMI represents a step in the right direction but there is a mountain still to climb before a sustainable recovery is in sight.”

Private sector businesses across the eurozone also returned to growth for the first time last month, according to the flash IHS Markit eurozone composite purchasing managers index (PMI). The index rose further in July from the all-time low of 13.6 in April, climbing from 48.5 in June to 54.8.

This was the first reading above the 50.0 no-change level since February and indicated the largest monthly gain in output since June 2018.

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