- A disappointing survey. The extent of March’s weakness means that the UK economy is likely to have contracted in the first quarter, despite coronavirus not affecting activity in January and only having a small impact in February.
- The “flash” March purchasing managers’ survey shows the UK economy struggling under the impact of coronavirus – as restrictions on activity were increasingly imposed and hit services activity particularly hard.
- The survey shows joint services and manufacturing output contracting in March at the fastest rate in the survey’s 22-year history. The index collapsed by 15.9 points to 37.1 from 53.0 in February.
- Services activity took a particularly big hit in March, with the PMI falling to a record low of 35.7; manufacturing activity showed more resilience, but the PMI nevertheless fell to a three-month low and showed renewed contraction with output at a 92-month low.
- Other elements of the survey rang very loud alarm bells for the UK economy. New business contracted at the fastest rate since December 2008, confidence plunged to a series low and jobs fell at the fastest rate since July 2009.
- The reduction in services and manufacturing jobs reported by the purchasing managers highlights the importance of the Government’s Coronavirus Job Retention Scheme and the need to ensure that it is effectively implemented.
- There is no doubt that the next few months at least are going to be very difficult for the UK economy. It is likely that the economy may see a contraction in the second quarter – although it is hard to put a figure on just how big the drop in GDP will be with any confidence given the unchartered territory that we are in. This is evident in the wide range of estimates currently being put forward.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The “flash” purchasing managers’ survey for the UK manufacturing and services sectors indicated that UK economic activity slumped markedly in March, as coronavirus increasingly affected business and consumer behaviour followed by restrictions on activity being imposed.
“Specifically, the composite output index for manufacturing and services plunged to 37.1 in March; this was the lowest level in the survey’s 22-year history. The previous low was 38.1 in November 2008. March’s reading was down from 53.0 in March and 53.3 in January (which had been the highest level since September 2016).
“March’ s reading of 37.1 was substantially below the 50.0 level that indicates flat activity.
“The survey highlighted the impact that coronavirus is already having on the economy. New business contracted at the sharpest rate since December 2008. Employment fell at the fastest rate since July 2009. Output expectations were the weakest since the series began in 2012 and by a wide margin.
Services PMI at record low
“Services activity suffered a particularly sharp collapse in activity in March, with the “flash” PMI plunging to a record low of 35.7 (series started in July 1996). This was down from 53.2 in February and a 16-month high of 53.9 in January.
“Markit reported “With measures to halt the spread of the coronavirus causing footfall to slump, by far the steepest downturns in activity were signalled by hotels & restaurants and other leisure activities such as sports centres, gyms and hair salons. The initial impact of emergency public health measures was also reflected in record downturns in activity across transport & travel and the vast business-to-business services category.”
Manufacturing PMI shows renewed contraction in March after first growth in 10 months in February
“The “flash” purchasing managers survey pointed to manufacturing activity contracting again in March after growing for the first time in 10 months in February.
“Specifically, the PMI fell back to 48.0 in March after rising to 51.7 in February from 50.0 in January and a 4-month low of 47.5 in December.
“March’s reading of 48.0 took the PMI back below the 50.0 level which indicates unchanged activity. Output contracted at the sharpest rate since July 2012. New business declined sharply as did employment. It should be noted that the headline PMI overstates the strength of the manufacturing sector as a marked positive contribution came from a record lengthening of supplier delivery times. This is normally seen as reflecting strong demand and a positive – but in this instance it was due to the disruption to supply chains stemming from coronavirus.”
March CBI industrial trends survey shows markedly weaker orders and fall in output expectations
“The March CBI industrial trends survey pointed to manufacturing activity coming under increased pressure.
“The orders balance fell back to a five-month low of -29% in March from a six-month high of -18% in February. This took it substantially below its long-term average of -13%. This reflected a marked weakening of both domestic and foreign demand. The export balance dropped to -28% in March from a six-month high of -17% in February. This also took it substantially below the long-term average of -17%.
“Manufacturing volumes were reported to have fallen over the previous three months, but at a slightly reduced rate compared to February. A balance of -8% reported a rise in March; this compared to -11% in February, -15% in January and -16% in December (which had been the weakest past output balance since September 2009). The CBI reported that nine out of the 17 sub sectors reported output volumes expanding, led by the chemicals, food, drink & tobacco, and electronic engineering sub-sectors. However, growth in these sectors was offset primarily by a sharp drop in output in the motor vehicles & transport equipment sub-sector.
“Output expectations for the next three months fell to the lowest level since April 2009. A balance of -20% of manufacturers expect a rise in output over the next three months, compared to a 12-month high of +8% in February.
“A balance of +7% of manufacturers expect to raise prices over the next three months; this was up from -2% in February.”