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Coronavirus: Data points to 'vastly improved' picture for UK economy

·Finance and news reporter
·3-min read
The evening light on the City of London skyline by the river Thames
The evening light on the City of London skyline by the river Thames. Photo: Barry Lewis/In Pictures via Getty Images

New purchasing managers’ index data from the UK’s manufacturing sector suggests that the country’s economy stabilised in June, even as a further decline in the services sector raised the prospect of an extended recovery.

The composite purchasing managers’ index (PMI) reading from IHS Markit’s closely watched survey came in at 47.6 in June, up from 30.0 in May and just 13.8 in April.

PMIs are an indicator of private sector activity and are given on a scale of 1 to 100. Because anything below 50 signals a decline, the figure indicates that the UK economy contracted once again in June, even if the pace was slower than that seen in previous months.

IHS Markit said that a 47.0 figure from the services sector and a 50.1 figure from the manufacturing sector pointed to a “vastly improved” picture for the economy, with survey respondents noting that the easing of coronavirus restrictions had a favourable impact on activity.

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The month-on-month change in the headline index — from 30.0 to 47.6 — is the largest since IHS Markit started collecting PMI data in 1998, while confidence reached a four-month high in June.

“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,” said Chris Williamson, the chief business economist at IHS Markit.

“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 warned, however, that the longer-term recovery prospects remained “highly uncertain,” noting that some of the recent PMI gains were as a result of short-term bounces due to businesses returning to work.

Weak demand was reflected by a decline in backlogs of orders and a continued fall in new orders in the month.

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Concerns about the pace of the recovery in customer demand also dented employment numbers in June, with the survey indicating another rapid drop in staffing levels.

The manufacturing output index ended a three-month period of contraction, hitting 50.8 in June. Business optimism among manufacturers rose its highest level since September 2018, reflecting hopes of a sustained recovery in production.

Around 33% of respondents from the services sector saw a fall in business activity during June. Just 28% saw an expansion, according to IHS Markit.

"Uncertainty over recovery prospects and job prospects also mean demand for many goods, especially non-essential big-ticket items, is likely to remain weak for many months, with Brexit uncertainty also continuing to cast a shadow over the economy,” Williamson said.