UK firms experienced the fastest upturn in five years during July as the economy reopened from the Covid-19 lockdown, an authoritative report shows today (Friday 24 July).
The IHS Markit/CIPS UK Composite Purchasing Managers' Index (PMI), which measures output and employment in manufacturing and service companies, rose to 57.1 from 47.7 in June.
The survey – see methodology below – includes measurement of export orders.
Hopes exceeded
The jump in the PMI index exceeded expectations and is the highest level since June 2015.
Overall, the latest survey indicated a return to growth for the service sector and a much faster rise in manufacturing production than seen in June.
"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," said Chris Williamson, chief business economist at IHS Markit.
UK private sector firms indicated a solid rebound in new order volumes during July, especially from domestic customers.
Cautious notes
A full return to pre-Covid levels of output across businesses could take years, according to economists quoted in Reuters.
"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," Williamson said.
Despite the restart of more parts of the service economy, especially leisure-related businesses, there were also reports that initial levels of demand had been weaker than expected.
Employment drops
At the same time however, employment numbers continued to fall sharply, with the rate of job shedding accelerating since the previous month. Lower staffing levels were typically linked to redundancies in response to depressed workloads and higher operating costs, respondents said.
Around one-in-three survey respondents (34%) reported a fall in employment during July, while only 10% signalled an increase.
Survey methodology
The IHS Markit / CIPS Flash UK Composite PMI is compiled by IHS Markit from responses to questionnaires sent to survey panels of around 650 manufacturers and 650 service providers.
The panels are each stratified by detailed sector and company workforce size, based on contributions to GDP. The services sector is defined by IHS Markit as consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.
Survey responses are collected in the second half of each month.
The following variables are monitored:
Manufacturing: Output, new orders, new export orders, backlogs of work, stocks of finished goods, employment, quantity of purchases, suppliers' delivery times, stocks of purchases, input prices, output prices, future output.
Services: Business activity, new business, new export business, outstanding business, employment, input prices, prices charged, future activity.
