- The flash November purchasing managers surveys point to the economy contracting as England’s lockdown weighed on services sector activity. The manufacturing sector has been less affected by restrictions with the Government keeping factories open.
- The under-performance of the services sector relative to manufacturing was the worst in nearly 25 years of data collection, according to Markit.
- The services PMI moved into contraction territory as it declined to a six-month low of 45.8 in November. Activity fell as the hospitality and leisure sector was affected by the lockdown. General consumer spending on services was dampened by restrictions.
- In contrast, the manufacturing sector showed considerable resilience with the PMI improving to a three-month high of 55.2 in November, up from 53.7. Manufacturing activity was lifted by stockpiling as producers sought to acquire critical inputs before the UK-EU transition arrangement ends on 31 December. There were also reports of foreign orders being lifted by purchases by EU companies ahead of the ending of the withdrawal agreement.
- The composite output index for manufacturing and services dipped to a six-month low of 47.4 in November from 52.1 in October. While this took the composite output index below 50.0, the monthly decline was substantially less than had occurred in both March and April after the first lockdown; then the composite output index fell to a record low 13.8 in April from 36.0 in March and 53.0 in February.
- Other elements of the survey were also largely softer in November, almost entirely due to the services sector. Joint new orders contracted for a second successive month while backlogs of work declined. Services and manufacturing jobs fell at the fastest rate for three months and steeply in November, providing context for the extension of the furlough scheme until March.
- Confidence picked up in November to be the highest since March 2015. This was buoyed by positive news on the vaccine and hopes of an end to COVID-19 restrictions.
- Both surveys reinforce belief that the impact of the national lockdown in England and other restrictive measures on economic activity in Q4 2020 will be markedly less than occurred in April and overall in Q2 2020 following the March restrictions.
- The EY ITEM Club forecasts that there could be GDP contraction around 4% in Q4. This assumes that restrictions on activity remain appreciable overall after the lockdown in England ends on 2 December. This would result in overall GDP contraction around 11.5% in 2020.
- The Chancellor’s extension of the furlough scheme to the end of March should limit the near-term rise in unemployment and help activity, while there could be some boost to economic activity from stockbuilding ahead of the UK-EU transition arrangement on 31 December.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The November ‘flash’ purchasing managers’ surveys for the UK manufacturing and services sectors indicated that activity is contracting again due to the effects of the national lockdown in England and restrictions elsewhere.
“The contraction is considerable in the services sector, as most of the hospitality and leisure sector has been temporarily closed. There were also reports that general consumer spending on services had been dampened by restrictions.
“However, manufacturing is showing considerable resilience with activity strengthening to a three-month high in November. Significantly though, manufacturing activity was lifted by stockpiling as producers sought to acquire critical inputs before the UK-EU transition arrangement ends on 31 December.
“Markit reported that the under-performance of the services sector relative to manufacturing was the worst in nearly 25 years of data collection.
“The composite output index for manufacturing and services fell back to a six-month low of 47.4 in November from 52.1 in October. While this took the composite output index into contractionary territory (below 50.0), the monthly decline was notably substantially less than had occurred in both March and April after the 23 March lockdown; then the composite output index sank to a record low of 13.8 in April from 36.0 in March and 53.0 in February.
“Other elements of the survey were also softer across the board in November. Joint new orders contracted for a second successive month. Services orders declined sharply which outweighed a “solid” increase in manufacturing orders.
“Backlogs of work decreased at the fastest pace since June amid shrinking demand and a lack of pressure on business capacity.
“Employment fell at the fastest rate in three months in November and appreciably, despite the Chancellor extending the furlough scheme.
“Encouragingly though, confidence picked up in November to be the highest since May 2015. This was buoyed by positive news on the vaccine and hopes of an end to COVID-19 restrictions.”
November services PMI points to appreciable contraction in November
Howard Archer continues: “Services activity contracted markedly in November. The ‘flash’ services PMI moved to a six-month low of 45.8 in November from 51.4 in October, 56.1 in September and a 64-month high of 58.8 in August (when the ‘Eat Out to Help Out’ scheme lifted activity in the restaurant sector). Nevertheless, the services sector PMI was substantially above April’s record low of 13.4.”
Manufacturing PMI shows stronger activity in November
Howard Archer comments: “The ‘flash’ purchasing managers survey pointed to stronger manufacturing activity in November, with activity buoyed by stockpiling ahead of the ending of the ending of the UK-EU transition period on 31 December. Markit reported a lengthening of suppliers’ delivery times and delays at UK ports.
“The Government has stressed that it wants manufacturers to stay open during the lockdown, and lessons have been learned in keeping activity going from earlier in the year. Many factories have been adjusted to meet the social distancing requirements so employees can still work.
“The “flash” PMI rose to a three-month high of 55.2 in November; it had previously fallen back to 53.7 in October from 54.1 in September and a 30-month high of 55.3 in August. It had earlier hit a record low of 32.6 in April during the first lockdown.
“Output growth picked up in November and was at a healthy level with the index at 56.3.
“New business growth slowed overall due to softer domestic demand. Export orders rose at the strongest rate since February 2018. There were reports of foreign orders being lifted by purchases by EU companies ahead of the ending of the withdrawal agreement.
“Markit reported the strongest increase in pre-production inventories since October 2019, which was almost exclusively attributed to Brexit uncertainty and a subsequent build-up of critical inputs before the end of the transition period.”