Press release

23 Apr 2020 London, GB

Flash April purchasing managers survey shows a further deterioration in the economy in April – EY ITEM Club comments

The flash purchasing managers survey shows a substantial deterioration in April with joint services and manufacturing output contracting at the fastest rate in the survey’s 22-year history.

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  • The flash purchasing managers survey shows a substantial deterioration in April with joint services and manufacturing output contracting at the fastest rate in the survey’s 22-year history. The index dropped by a record 23.1 points to 12.9 in April from 36.0 in February. The composite manufacturing and services output index has dropped by 40.1 points over two months to 12.9 in April from 53.0 in February.
  • Services activity was particularly impacted in April, with the PMI falling to a low of just 12.3. The decline in manufacturing activity was less pronounced, but it nevertheless contracted at a record rate.
  • Forward looking elements of the survey indicate that the contraction in activity will continue over the next few weeks at least.
  • New business and backlogs of work fell at record rates, while prices charged were also cut significantly by some manufacturing and services companies.
  • The fall in services and manufacturing jobs reported by the purchasing managers highlights the importance of the Government’s Coronavirus Job Retention Scheme.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

The April “flash” purchasing managers’ survey for the UK manufacturing and services sectors indicated that the economy suffered a significant contraction during the month as the lockdown weighed heavily on many parts of the services sector and on manufacturing activity.

Specifically, the composite output index for manufacturing and services reached a new all-time low of 12.9 in April from 36.0 in March (which had been the previous record low in the survey’s 22-year history). It had fallen to 36.0 in March from 53.0 in February and 53.3 in January (which had been the highest level since September 2016).

This meant that the composite output index for manufacturing and services output has dropped by 40.1 points over two months to 12.9 in April from 53.0 in February. April’s reading of 12.9 was significantly below the 50.0 level that indicates flat activity.

Markit reported that around 81% of UK service providers and 75% of manufacturing companies reported a fall in business activity during April, which was overwhelming attributed to coronavirus.

Forward-looking elements of the survey are worrying for near-term activity at least. New business and backlogs of work fell at record rates, while prices charged were cut at a record pace by some manufacturing and services companies. Employment also fell.

Output expectations were very weak but edged up from the record low seen in March.

Services PMI at new record low and contracting substantially

Services activity saw another weak performance in April as the “flash” PMI deteriorated to a record low of just 12.3 (series started in July 1996). This was down from 35.7 in March, 53.2 in February and a 16-month high of 53.9 in January.

Markit said “customer-facing service providers often reported a complete shutdown of their business operations in April amid the public health emergency, while a wide range of survey respondents commented on weaker demand following temporary closures among their clients.”

Hotels, restaurants and other consumer-facing business reported the steepest drop in output within the service sector, with many firms reporting a total halt in activity. Financial services saw the smallest decline, although it still contracted.

Manufacturing PMI shows sharp contraction

The “flash” purchasing managers survey pointed to manufacturing activity contracting at a record rate in April. Specifically, the PMI fell back to 32.9 in April from 48.0 in March and 51.7 in February (which had indicated the first expansion since April 2019).

April’s reading of 32.9 took the PMI markedly below the 50.0 level which indicates unchanged activity.

Output contracted at a record rate; the index was just 16.6, down from 43.9 in March.

Sharply lower output in April was attributed to plant shutdowns or reduced production capacity, as well as cancelled orders across some manufacturing supply chains following the COVID-19 pandemic.

The small minority of manufacturers reporting output growth were mostly involved in medical supply chains or producers of food & drink.

The sharpest drop in output was registered in the textiles & clothing sector, largely reflecting the weak demand from the retail sector, although the transport sector, including car production, also reported a steep decline.

CBI industrial trends survey shows decline in manufacturing activity in April

  • The April CBI industrial trends survey showed a substantial decline in manufacturing activity in April, with new orders and output over the past three months falling at the fastest rate since 2009.
  • Expectations for output over the next three months are the weakest on record. Both domestic and export orders are expected to fall at a faster rate over the next three months.
  • The quarterly survey showed record low confidence levels among manufacturers. This translated into reduced investment and employment plans.
  • There were also low intentions for investment in plant & machinery and in buildings. This reinforces belief that business investment will be heavily impacted in the near-term from coronavirus.
  • Survey shows manufacturers expect to reduce headcount over the next three months at the highest rate since October 1980.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

The April CBI industrial trends survey added to the evidence of the significant decline in manufacturing activity in April.

The orders balance fell back to -56% from -29% in March and -18% in February. This took it down to the lowest level since 2009, and substantially below its long-term average of -13%. This reflected a sharp weakening of both domestic and foreign demand. The export balance fell to -49% in April from -28% in March. This also took it below the long-term average of -17%.

Manufacturing volumes were reported to have fallen over the previous three months, at the fastest rate since 2009. A balance of -21% reported a rise in April; this compared to -8% in March.

Output expectations for the next three months fell to a record low. A balance of -67% of manufacturers expect a rise in output over the next three months, compared to -20% in March and +8% in February.

Both domestic and export orders are expected to fall at a faster rate over the next three months.

A balance of -11% of manufacturers expect to raise prices over the next three months, reflecting a perceived need to discount to win business.

The simultaneously released CBI quarterly survey showed that confidence among manufacturers deteriorated to reach a record low. Specifically, the business optimism index fell to -83% in April from +23% in January (the highest since April 2014).

Unsurprisingly, investment intentions also deteriorated. A balance of -74% of manufacturers expect to invest more in plant and machinery; this was down from +5% in the January survey. There was also a record low of -65% for investment intentions for buildings compared to -11% in the January survey.

A balance of 14% of manufacturers reported that headcount dropped over the past three months. The survey also showed a large balance of 61% of manufacturers expect to reduce headcount over the next three months. This is the highest since October 1980.