Press release

23 Sep 2020 London, GB

Flash purchasing managers survey indicates UK economic activity lost momentum in September, but performance up markedly over Q3 – EY ITEM Club comments

The flash purchasing managers surveys point to the economy losing some momentum in September, but still seeing substantial improvement over Q3.

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Related topics Growth COVID-19
  • The flash purchasing managers surveys point to the economy losing some momentum in September, but still seeing substantial improvement over Q3
  • The services PMI dipped to a three-month low of 55.1 in September from a 64-month high of 58.8 in August, while the manufacturing PMI eased back to 54.2 from a 30-month high of 55.2. The composite output index dipped to a three-month low of 55.7 in September from August’s six-year high of 59.1
  • There seems to have been a slowdown in consumer demand for services, which was only partly due to the ending of the ‘Eat Out to Help Out’ scheme. There were concerns that consumer demand may have peaked
  • Other elements of the survey were also largely softer in September. Joint new orders grew for a third month running, but at the slowest rate since June. Confidence in future output was the lowest since May
  • Services and manufacturing jobs fell again in September, albeit at the slowest rate since March. This may prompt the Chancellor to take further steps to support the labour market
  • Despite showing some slowdown from August, the September purchasing managers’ survey confirms the EY ITEM Club’s belief that the economy saw a substantial rebound in Q3 after GDP contracted a record 20.4% quarter-on-quarter in Q3
  • The EY ITEM Club now believes that GDP growth in Q3 is likely to be at least 15% quarter-on-quarter as the economy benefitted from reduced lockdown restrictions and the release of pent-up demand
  • However, it is increasingly evident that Q4 will be more challenging for the UK economy
  • Economic activity in Q4 is expected to lose substantial momentum given the likely rise in unemployment at the end of the furlough scheme in October and as the boost from pent-up demand wanes. Increased restrictions on activity due to rising COVID-19 cases are also now set to have some dampening impact on the economy. Uncertainties over the future UK-EU trade relationship could also fuel business caution and weigh on investment

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

“The September ‘flash’ purchasing managers’ survey for the UK manufacturing and services sectors indicated that activity lost some momentum after August had recorded the strongest reading for six years.

“The composite output index for manufacturing and services dipped to a three-month low of 55.7 in September after rising to a 72-month high of 59.1 in August 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).

“September’s reading of 55.7 was still markedly above the 50.0 level that indicates flat activity.

“In addition, the composite output index average of 57.3 points to robust growth over Q3.

“Other elements of the survey were also largely softer in September. New orders rose for a third successive month but at the slowest rate since June. There were concerns that consumer demand had peaked.

“Confidence weakened for a second month running in September to be at the lowest level since May. Notably, concerns related to the COVID-19 pandemic were commonly cited in September, alongside ‘Brexit-related concerns’ and subdued forecasts for the global economy.

“Employment continued to fall in September, albeit at the slowest rate since March. Job cuts were more extensive in services than in manufacturing. This fuels belief that the Chancellor may feel compelled to take further steps to support the labour market.”

September services PMI points to reduced expansion as consumer demand softened

Howard Archer continues: “Services activity lost momentum in September after the purchasing managers’ index had reached a six-year high in August.

“This appears to be largely due to softer demand from consumers. The ending of the ‘Eat Out to Help Out’ scheme led to reduced demand in the restaurant sector but the slowdown ran deeper than this with Markit observing: “Demand for other consumer-facing services also stalled as companies struggled amid new measures introduced to fight rising infection rates and consumers often remained reluctant to spend.”

Howard Archer continues: “There was reported robust growth in business services and financial services.

“The ‘flash’ services PMI dipped to 55.1 in September after rising to a 64-month high of 58.8 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 fallen 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.

“Markit observed that “some service providers reported a continued rebound in business activity during September, helped by stronger housing market conditions, rising demand for digital services and greater domestic tourism. However, large parts of the service economy continued to cite a severely negative impact on business activity from the pandemic, especially those operating in transport services, international travel, hospitality and consumer-facing areas.

“Confidence in the services sector dipped to a four-month low in September.”

Manufacturing PMI shows expansion in September coming off August’s 30-month high

Howard Archer adds: “The ‘flash’ purchasing managers survey pointed to manufacturing expansion coming off August’s 30-month high but still seeing healthy growth.

“The PMI eased back to 54.3 in September after rising 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.

“Output continued to grow at a robust rate in September and was not that far below August’s strongest reading since April 2014.

“New business growth also slowed but was also relatively decent. This was helped by export orders rising at the strongest rate since February 2018.

“Confidence was essentially stable in the manufacturing sector in September.”