Press release

21 Aug 2020 London, GB

Flash purchasing managers survey indicates UK economic activity stepping up further in August – EY ITEM Club comments

The flash August purchasing managers surveys point to the economy picking up further, which bodes well for third quarter growth prospects amid reduced restrictions on activity.

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Related topics Growth COVID-19
  • The flash August purchasing managers surveys point to the economy picking up further, which bodes well for third quarter growth prospects amid reduced restrictions on activity
  • Encouragingly, the survey points to both services and manufacturing activity improving to know highs. The services PMI rose to a 72-month high of 60.1 in August from 56.5 in July, while the manufacturing PMI was up to a 30-month high of 55.3 from 53.3. The survey shows joint services and manufacturing output expanding at the fastest rate since June 2015. The composite output index rose to an 82-month high of 60.3 in August from 57.0 in July
  • Joint new orders grew for a second month running and at the fastest rate since July 2014, with both corporate and household demand improving
  • Services and manufacturing jobs fell appreciably in August and at the fastest rate since May. This may prompt further steps to support the labour market in the Autumn Budget
  • Following on from news that retail sales volumes rose a healthy 3.6% month-on-month in July, the August purchasing managers’ survey bolsters the EY ITEM Club’s belief that the economy will see a substantial rebound in the third quarter after GDP contracted a record 20.4% quarter-on-quarter in the third quarter. The EY ITEM Club expects GDP growth of at least 12% quarter-on-quarter in the third quarter and it is likely to get up to around 15% as the economy benefits from reduced lockdown restrictions and the release of pent-up demand
  • However, the EY ITEM Club suspects growth is likely to slow appreciably in the fourth quarter as unemployment rises following the end of the furlough scheme and the boost from pent-up demand wanes

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

“The August ‘flash’ purchasing managers’ survey for the UK manufacturing and services sectors indicates that activity picked up significantly, boding well for third quarter growth.

“The composite output index for manufacturing and services rose for a fourth successive month to an 82-month high of 60.3 in August, up from 57.0 in July, 47.7 in June, 30.0 in May and an all-time low of 13.8 in April (the survey has been going for 22 years).

“August’s reading of 60.3 took the index substantially above the 50.0 level that indicates flat activity.

“Markit said that “higher levels of private sector output were overwhelmingly attributed to the reopening of the UK economy after the lockdown period in the second quarter of the year and a subsequent increase in both consumer and business spending”.

“Forward-looking elements of the survey also showed improvement for a fourth successive month in August. In particular, new orders rose for a second successive month and at the fastest rate since July 2014, with domestic demand seeing particular improvement. Demand benefitted from accelerated re-opening among corporate customers, while households showed greater willingness to spend.

“However, the Markit reported that survey respondents often commented on the restart of projects delayed during the public health emergency, but continued to note that levels of demand remained well below those seen prior to the pandemic.

“Despite this, confidence slipped back in August after consecutive improvements since March, reflecting concerns among some companies over the likely pace of recovery.

“Employment continued to fall appreciably and at the fastest rate since May. Lower payroll numbers were primarily attributed to redundancy programmes in response to falling labour demand and the need to reduce overheads before the Government’s job retention scheme winds down. This may prompt the Chancellor to take further steps to support the labour market in the Autumn Budget.”

August services PMI points to pick-up in activity to 72-month high

Howard Archer continues: “Services activity built on July’s substantial improvement to expand at the fastest rate for six years in August, according to the PMI.

“The ‘flash’ services PMI rose to 60.1 in August from 56.5 in July, 47.1 in June, 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.

“August’s reading of 60.1 was substantially above the 50.0 level that indicates flat activity.

“The improvement in services activity was linked to the re-opening of companies’ own sites and their client sites.

“New business in the services sector grew at the fastest rate since March 2015, led by higher levels of consumer spending. Markit reported “Service providers noted that customer footfall had improved in August and easing lockdown measures had helped them to accelerate the restart of business operations. Hotels & Restaurants reported a notable boost from the Eat Out to Help Out scheme, while others in the leisure categories commented on a general rise in demand linked to the trend for staycations.” However, confidence dipped in the services sector in August while employment fell at an increased rate.”

Manufacturing PMI shows expansion at 30-month high in August

Howard Archer comments: “The ‘flash’ purchasing managers survey pointed to manufacturing expansion accelerating to a 30-month high in August as it grew for a third successive month.

“The PMI rose to 55.3 in August from 53.3 in July, 50.1 in June, 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.

“August’s reading of 55.3 took the PMI well above the 50.0 level which indicates unchanged activity.

“Output grew at the fastest rate since April 2014. Markit reported that “goods producers noted that easing lockdown measures had led to a restart of their supply chains and efforts by customers to replenish inventories.”

Howard Archer adds: “New business rose for a second successive month and at an improved rate. However, confidence dipped in the manufacturing sector in August while employment fell at an increased rate.”