UK economic activity may have begun to recover from a disastrous April, but remained deeply depressed even after Boris Johnson announced the first easing of the coronavirus lockdown and urged some businesses to reopen, a key survey shows.
The latest IHS Markit/Cips purchasing managers’ index for the UK, published on Thursday, showed that manufacturing and services output remained far below normal levels in May, even though sentiment had improved since the previous month.
The reading of 28.9 — a flash, or interim, estimate based on 85 per cent of survey responses — was up from April’s all-time low of 13.8 but was still far worse than at any other point in the survey’s 22-year history. This means that a large majority of businesses reported falling output and IHS Markit said it still signalled a rate of economic contraction much faster than at the worst point of the 2008 crisis.
The survey was conducted between May 12 and 19, after the prime minister had encouraged people unable to work from home, in sectors such as manufacturing and construction, to go back to work. It suggests that reopening the economy will be a slow process, even once formal restrictions are lifted.
“The UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer Covid-19 cases,” said Chris Williamson, chief business economist at IHS Markit.
Andrew Wishart, economist at the consultancy Capital Economics, said the survey should not be taken literally, to mean activity had sunk even from April’s nadir. “Instead it seems to be suggesting that the low point for activity was reached in April, but that it is still well below normal in May,” he said, adding that the modest improvement matched anecdotal evidence of some factories reopening and more restaurants starting to offer takeaway services.
The survey showed businesses were slightly less pessimistic than in April about the outlook for the next 12 months, but many respondents raised concerns that demand would take a long time to recover to levels seen before the crisis, especially in the worst-hit parts of the services sector.
In manufacturing, there were signs of demand picking up from the construction industry and renewed activity in other areas, but companies in the automotive sector in particular reported a severe drop in demand. In the services sector, there was a pick-up in some areas of online sales, and in demand for some technology services, but even among businesses able to work remotely, many had seen clients cut spending and cancel projects.
A large majority of employers said they were shedding jobs, with anecdotal evidence that those using the government’s furlough scheme reporting they had placed more than half their staff on leave.
On average, companies were cutting prices — reflecting discounting by service sector businesses whose sales had slumped, as well as lower costs due to reduced wage bills and the fall in fuel prices.
Samuel Tombs, economist at the consultancy Pantheon Macroeconomics, said that while businesses’ expectations for the future were much closer to normal levels than the headline measure of activity, the employment sub-index was consistent with bigger lay-offs than were seen in the last recession.
A separate survey by the Office for National Statistics, published on Thursday and conducted in the two weeks to May 3, showed that 6 per cent of UK businesses had restarted trading, with a much higher proportion reopening in food services, construction and manufacturing.