Press release

23 Jun 2020 London, GB

Purchasing managers’ survey indicates UK economic activity stepped up further in June as lockdown restrictions eased – EY ITEM Club comments

The flash June purchasing managers’ survey points to services activity contracting a reduced rate in June, while the manufacturing sector achieved marginal growth.

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Related topics Growth COVID-19
  • The flash June purchasing managers’ survey points to services activity contracting a reduced rate in June, while the manufacturing sector achieved marginal growth. The services PMI rose to 47.0 in June from 29.0 in May while the manufacturing PMI was up to 50.1 from 40.7
  • The survey shows the contraction in joint services and manufacturing output slowing appreciably for a second month running in June from April’s record drop. The index rose to a four-month high of 47.6 in June from 30.0 in May and just 13.8 in April
  • There has been evidence that the economy started to recover in May from April’s lows (when GDP contracted 20.4% month-on-month) and the purchasing managers’ surveys fuel belief that the economy took another step forward in June as lockdown restrictions were eased further
  • Markit noted that the 17.6 point increase in the composite manufacturing and services output index in June was the largest monthly rise since the series started in January 1998
  • Despite activity seemingly improving in June and May from April’s deep low, it is evident that the UK economy suffered record, substantial GDP contraction in the second quarter. The EY ITEM Club suspects that the economy likely contracted around 17% quarter-on-quarter in the second quarter
  • The EY ITEM Club expects the economy to return to clear growth in the third quarter, with GDP expanding close to 10% quarter-on-quarter. This assumes a further easing of lockdown restrictions, including a relaxation of social distancing rules. The EY ITEM Club also expects GDP to contract around 8.0% over 2020
  • New business fell at a reduced rate in June, but there was still contraction, while confidence rose to a four-month high
  • Overall prices charged were cut again as some companies tried to secure business by discounting. With input prices rising, margins were squeezed

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

“The June “flash” purchasing managers’ survey for the UK manufacturing and services sectors indicated that activity picked up appreciably from April’s lows following improvement in May. While the surveys still pointed to modestly contracting activity overall, the strong likelihood is that the UK economy is now growing again.

“Indeed, Markit noted that the 17.6 point increase in the composite manufacturing and services output index in June was the largest monthly rise since the series started in January 1998.

“Specifically, the composite output index for manufacturing and services rose to a four-month high of 47.6 in June from 30.0 in May and an all-time low of 13.8 in April (the survey has been going for 22 years). It had previously fallen to April’s record low from 36.0 in March, 53.0 in February and 53.3 in January (which had been the highest level since September 2016).

“June’s reading of 47.6 was getting close to, but still below the 50.0 level that indicates flat activity.

“The flash purchasing managers’ surveys support the belief that the economy has picked up further in June from April’s low-point (when GDP contracted 20.4% month-on-month) as there has been a progressive easing of lockdown restrictions since mid-May. There has been evidence that the economy started to recover in May from April’s lows (such as improved retail sales and an improved set of May purchasing managers’ surveys), and the purchasing managers surveys suggest that the economy took another step forward in June as lockdown restrictions were eased further.

“Markit reported that that the easing of restrictions related to the COVID-19 pandemic had a favourable impact on economic activity in June, with business operations gradually resuming in a number of sectors and some staff brought back from furlough.

“The EY ITEM Club suspects that the economy likely contracted around 17% quarter-on-quarter in the second quarter. The EY ITEM Club expects the economy to return to clear growth in the third quarter with GDP expanding close to 10% quarter-on-quarter. This assumes a further easing of lockdown restrictions, including a relaxation of social distancing rules. The EY ITEM Club expects GDP to contract around 8.0% over 2020.

“Forward-looking elements of the survey also showed improvement for a second successive month in June, although they were still far from robust which will likely maintain concern that the recovery could be limited by cautious consumers and businesses. Indeed, Markit reported “there were also widespread reports that underlying demand remained very subdued and cutbacks to client spending had acted as continued drag on overall business activity.”

“New business of work contracted for a fourth month in June, but the rate of decline was reported to have slowed from May.

“The drop in employment slowed but was still appreciable. Markit reported “Concerns about the likely speed of recovery in customer demand also weighed on employment numbers during June, with the latest survey indicating another rapid, albeit slower, drop in total staffing level.” The ongoing sharp fall in services and manufacturing jobs reported in services and manufacturing jobs reported by the purchasing managers in June supports the Government’s extension of the Coronavirus Job Retention Scheme through to October (with some flexibility to be built in from August). It also supports the case for government measures to support employment once the furlough scheme ends.

“Output expectations improved to a four-month high in June. Margins were also squeezed as prices charged were cut despite higher input prices.”

June services PMI points to activity nearing stabilisation after substantial contraction, especially in April

Howard Archer continues: “Services activity contraction slowed for a second successive month in June and was relatively limited, having suffered very substantial, record contraction in April (the series started in July 1996).

“The “flash” PMI rose to 47.0 in June from 29.0 in May and a record low of just 13.4 in April. It had previously weakened to April’s low of 13.4 from 35.7 in March, 53.2 in February and a 16-month high of 53.9 in January.

“Around 33% of service companies recorded a fall in business activity during June, while only 28% signalled an expansion.  

“Markit reported “Financial Intermediation was the best performing area of activity in June, followed by Transport & Communication Services, with survey respondents commenting on a boost to demand following the gradual restart of activity across the UK economy. Meanwhile, overall service sector output was held back by business closures in the Hotels, Restaurants & Catering category and another steep downturn signalled by Business-to-Business service providers.””

Manufacturing PMI shows marginal growth in June

Howard Archer continues: “The “flash” purchasing managers’ survey pointed to manufacturing activity eking out marginal expansion in June for the first time since February.

“Specifically, the PMI rose to 50.1 in June from 40.7 in May and a record low of 32.6 in April. It had previously fallen to April’s low from 48.0 in March and 51.7 in February (which had indicated the first expansion since April 2019).

“June’s reading of 50.1 took the PMI marginally above the 50.0 level which indicates unchanged activity.

“Output grew slightly for the first time since February as the sub-index rose to 50.8 from 35.0 in May and just 16.3 in April. There were reports of re-opening of manufacturing plants.

“Confidence in the sector rose to the highest level since September 2018. However, new orders continued to decline in June. Demand from the auto and aviation sectors were reported to be particularly weak.”