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Press release

3 Jun 2020 London, GB

May purchasing managers’ survey indicates that UK services activity improved from April’s lows but remains at a very low level

The final purchasing managers survey points to a still very substantial contraction in services activity in May. However, there was a clear slowing of the rate of decline compared to April’s record low.

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  • The final purchasing managers survey points to a still very substantial contraction in services activity in May. However, there was a clear slowing of the rate of decline compared to April’s record low.
  • At 29.0 in May (revised up from the “flash” reading of 27.8 and up from 13.4 in April), the services PMI was the second lowest reading since the series started in July 1996.
  • Other elements of the May services purchasing managers’ surveys were off April’s lows while still being weaker than past norms. New business contracted, while there was a decline in backlogs of work. Output prices were cut as services companies looked to gain business.
  • An ongoing fall in services and manufacturing jobs reported by the purchasing managers in May provides context for the Government’s extension of the Coronavirus Job Retention Scheme through to October.
  • The survey also shows the contraction in joint services and manufacturing output slowing appreciably in May compared to April’s record low. May’s decline was still the second fastest rate in the survey’s 22-year history. The index rose to 30.0 in May (revised from the “flash” reading of 28.9) after falling to 13.8 in April from 36.0 in March and 53.0 in February.
  • The May purchasing managers’ surveys support belief that April saw the lowest point in UK economic activity and matters should improve as lockdown restrictions are progressively eased over the coming weeks. Despite this, the UK remains headed for a record GDP contraction in the second quarter – the EY ITEM Club expects a second quarter GDP contraction of around 15% quarter-on-quarter.
  • While the EY ITEM Club expects the economy to return to growth from the third quarter, we still see the economy contracting around 8% over 2020. This assumes that there is a gradual further lifting of the lockdown over the coming weeks following the latest moves that came into effect on 1 June.

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

“While the services activity contraction slowed in May compared to April’s record low, it was still the second lowest level since the series started in July 1996.

“The PMI rose to 29.0 in May (revised up from the “flash” reading of 27.8) after falling to a record low of just 13.4 in April from 35.7 in March, 53.2 in February and a 16-month high of 53.9 in January.

“May’s reading of 29.0 was still well below the 50.0 level that indicates flat activity.

“54% of service providers reported a drop in business activity during May, and only 13% experienced a rise since April.

“It was reported that cuts to corporate spending had been a major factor negatively affecting business activity in May, leading to a lack of work to replace completed projects.

“Markit indicated that there were some reports that the gradual opening up of the UK economy – especially in the construction sector – had had some positive impact on demand.”

Surveys point to the economy headed for record contraction in second quarter

Howard Archer continues: “The May purchasing managers’ surveys for the UK services and manufacturing sectors indicated that the economy contracted at an exceptionally high rate during the month, but activity did at least come clearly away from the record level low  in April.

“There were reports that activity was helped in May by some re-opening of companies amid the modest easing of lockdown restrictions.

“The composite output index for manufacturing and services rose to 30.0 in May (revised up from the “flash” reading of 28.9) after dropping to an all-time low of 13.8 in April from 36.0 in March. 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 had meant that the composite output index for manufacturing and services output has dropped by 39.2 points over two months to 12.9 in April from 53.0 in February.

“Nevertheless, May’s s reading of 30.0 was still well below the 50.0 level that indicates flat activity and was the second lowest on record.”

Most elements of the May services survey were very weak

Howard Archer adds: “The May services survey showed still substantial weakness across virtually all elements, despite widespread improvement from April’s record lows.

“There was ongoing marked weakness in both domestic and foreign demand. Lower volumes of new business were often attributed to the cancellation of new projects, customer closures and constrained sales operations with staff placed on furlough.

“Employment contracted at the second highest rate on record in May after April all-time largest decline. It was reported that there was a mixture of hiring freezes and forced redundancies amid the slump in business activity seen during March. Significantly, a number of companies were reported placing staff on furlough, which appears to have softened the overall scale of job cuts recorded in the latest survey period. “Confidence in future activity was weak although it did rise for a second month running from March’s lowest level since the series started in 1996 to be at a three-month high.

“Prices charged by services companies were cut in May, reflecting the need to price competitively to gain or even hold on to business. This was helped by input prices falling.”