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UK economy stages fragile recovery in run-up to Christmas

Tom Belger
·Finance and policy reporter
·2-min read
England, Tyne and Wear, Gateshead, Newcastle, Gateshead Millenium Bridge and Newcastle Skyline. (Photo by: Prisma Bildagentur/UIG via Getty Images)
Gateshead Millennium Bridge as new figures show how the UK economy fared in December. Photo: Prisma Bildagentur/UIG via Getty Images.

The UK economy has seen a fragile recovery as parts of the country have emerged from lockdowns in the run-up to Christmas.

A leading business survey found a narrow majority of firms reporting business levels rising in December.

The number of factories reporting growth hit its highest in more than three years, boosted by Brexit stockpiling activity. But the figures conceal a less positive picture for services, which makes up around four-fifths of the economy from cafes to consultancies.

Services firms overall were close to stagnant, with more firms expanding than the previous month but a wafer-thin majority still reporting declining trade.

The purchasing managers’ index (PMI) data comes after the previous month’s figures showed a more severe decline in most firms’ trade for the first time in five months. England was in lockdown throughout November, with similar measures in Wales, Northern Ireland and parts of Scotland for some of the month.

Chris Williamson, chief business economist at IHS Markit, which compiles the figures, said the recovery “lacked vigour,” with growth weaker than in the four months leading up to November.

Survey responses are turned into headline figures on trade levels. The composite services and manufacturing was 50.7. The reading for services was 49.9 in December, on an index where figures above 50 show most firms expanding and below 50 show decline.

“Consumer-facing services, notably hotels, restaurants and tourism, reported further marked declines in output, largely offsetting renewed growth in business services, transportation and manufacturing,” said Williamson.

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Last month’s services reading was 47.6 and the latest figure was worse than expected by analysts, who had predicted a reading of 50.5.

For factories, the headline reading was 57.4, up from 55.6 in November and better than analysts’ expectations.

READ MORE: EU stockpiles UK factory goods as firms brace for Brexit disruption

The new figures are a ‘flash estimate’ based on responses received so far this month. The final full-month readings may deteriorate, particularly for services, given renewed lockdown restrictions in London and other areas.

The capital accounted for almost a quarter of UK output last year, and the shutdown of hospitality, culture and entertainment venues and warnings against non-essential travel will have a severe impact on many firms.

Business leaders warned thousands of jobs were at risk as the Tier 3 restrictions came into effect on Wednesday, with calls for more government support.

READ MORE: Blow to UK economy as London faces Tier 3 curbs

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