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Coronavirus: Growth in UK private sector hits five-year high amid 'surge' in business activity

Edmund Heaphy
·Finance and news reporter
·3-min read
The sun sets behind skyscrapers in the city financial district of London.
The sun sets behind skyscrapers in the city financial district of London. Photo: PA

Growth in the UK’s private sector hit a five-year high in July following a “surge” in business activity that will raise hopes of a strong recovery from the depths of the coronavirus crisis.

The composite purchasing managers’ index (PMI) reading from IHS Markit’s closely watched survey came in at 57.1, far ahead of expectations and significantly above June’s figure of 47.7.

PMIs are an indicator of private sector activity and are given on a scale of 1 to 100. Anything above 50 signals growth, while anything below means contraction.

A reading of 56.6 for the services sector “indicated that business activity was firmly in growth territory during July,” according to IHS Markit.

READ MORE: Retail sales return to pre-pandemic levels with 13.9% surge in June

But while the rise in activity came as an easing of coronavirus restrictions allowed many businesses to reopen, there were also reports that initial demand was weaker than expected, it said.

And, despite the growth, there was a continued decline in staffing levels across the sector, with around a third of survey respondents reporting a fall-off in employment during July.

The services sector is hugely important to the UK economy — it includes finance, law, retail, engineering, and consulting — and makes up about 80% of the country’s economic output.

“The UK economy started the third quarter on a strong footing as business continued to reopen doors after the COVID-19 lockdown,” said Chris Williamson, the chief business economist at IHS Markit.

“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.”

IHS Markit said that a “sustained recovery” in production capacity led to the fastest expansion of manufacturing output since November 2017 this month, with the sector’s PMI climbing to 53.6 from 50.1 in June.

READ MORE: European stocks sink amid rising US-China tensions

Business optimism across both sectors rose only slightly compared to June, and Williamson warned that a rapid or V-shaped recovery was “by no means assured.”

There was only a small jump in new orders, indicating “worryingly low” demand, he added.

“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.”

The stronger-than-expected PMI data follows new retail sales figures from June.

The Office for National Statistics (ONS) said on Friday that retail sales climbed by 13.9% in June, far exceeding forecasts and bringing them roughly into line with pre-pandemic levels.

June marked the second strong month of retail sales growth, following record falls in March and April.

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