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UK economy fires on all cylinders as private sector grows at fastest pace since 2015

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brexit concept - UK economy after Brexit deal - double exposure of flag and Canary Wharf business center skyscrapers
Looking ahead, the CBI predicts private sector growth to accelerate even further in the coming three months. Photo: Getty.

The UK economy is firing on all cylinders as it soars from months of coronavirus lockdown, with the private sector growing at the fastest rate in six years.

UK private sector activity expanded at the fastest pace since August 2015 in the quarter to May (30% up from 1% last month), according to the Confederation of British Industry's (CBI) latest monthly Growth Indicator.

In the same time period, business & professional services activity grew at a survey record pace (50% from 5%), while distribution sales (35% from -8%) and manufacturing output (18% from 3%) increased at the fastest rates since August 2018 and December 2018 respectively.

"As the country slowly but surely reopens, the economy has really taken off. Most sectors have seen a real uplift in activity in recent months and believe that the outlook for the summer is strong," said Alpesh Paleja, lead economist at the CBI.

Despite that, consumer services volumes fell -19% from -2%. This was largely driven by travel and leisure firms, many of which were still unable to open when CBI's May surveys were conducted, it said.

Graph: CBI
Graph: CBI

"All eyes will be on the government’s decision" on the fourth step of the roadmap out of lockdown," said Paleja. "As and when restrictions lift further, we shouldn’t lose sight of how fragile the situation will remain for some businesses, and the government will need to keep a watching brief of what support may need to continue."

But, prime minister Boris Johnson put a damper on plans to fully reopen the economy on 21 June. Johnson warned on Thursday that the Indian coronavirus variant could push back England's reopening, as the strain, first found in India spread rapidly in Britain.

Looking ahead, the CBI predicts private sector growth to accelerate even further in the coming three months (42%).

If these expectations were to be met, it would be the fastest rate of economic growth on record (since October 2003), it said. All sectors anticipate strong growth over this period — business & professional services (52%), consumer services (33%), manufacturers (33%) and distribution firms (37%).

The composite measure features responses from 552 companies between 27 April and 17 May this year.

Read more: Economy reopening lifts UK private sector to 23-year high

It comes after separate data showed UK's private sector grew at its fastest pace in over two decades in May as the reopening of the economy drove business confidence to a record high.

IHS Markit/CIPS Flash UK Composite PMI showed last week that its measure of private sector growth hit the highest since the index began in 1998, with hotels, restaurants and other consumer-facing services posting the strongest demand.

The figures also follow a robust outlook for the UK economy as reopens back to full capacity in the coming months, with private sector economists joining the Bank of England in predicting a historic year for growth.

Monthly private sector forecasts compiled by the Treasury indicate a big upgrade in forecasts for Britain's economy. Analysts are now predicting the best year for growth since the aftermath of the Second World War.

The average of 23 forecasts made since the start of May shows economists are now predicting GDP to grow 6.5% in 2021, compared with a forecast of 5.7% made last month. It marks the third month in a row that expectations have been upgraded.

The highest forecast comes from Goldman Sachs (GS), which now expects the economy to expand by 8.1% this year. The lowest, from macro forecaster Heteronomics, is 4.9%.

Watch: Will the UK economy bounce back in 2022?

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