- Some welcome news on the UK economy as the latest flash purchasing managers survey indicated that March saw services and manufacturing activity growing at the fastest rate for seven months
- The composite output index for manufacturing and services increased to 56.6 in March, after rising to 49.6 in February from an eight-month low of 41.2 in January. March took the index back above the 50.0 level that indicates flat activity
- The services sector returned to clear growth in March, having almost stabilised in February after a significant contraction in January. The services PMI improved to a seven-month high of 56.8 in March from 49.5 in February and an eight-month low of 39.5 in January
- The manufacturing PMI rose to a 40-month high of 57.9 in March from 55.1 in February and a three-month low of 54.1 in January
- Joint new orders grew for the first time in six months due to a pick-up in domestic demand. Employment rose for the first time in 13 months. Confidence improved to the highest level since the series began in July 2012. However, there are still concerns about supply chain delays
- The March survey fuels belief that, while the economy is highly likely to have contracted in Q1 because of lockdown restrictions, the decline in GDP was probably significantly less than had originally been expected
- The EY ITEM Club now suspects that the economy contracted by just over 1% quarter-on-quarter (q/q) in Q1, compared to the 3-4% q/q fall in GDP originally anticipated. The EY ITEM Club is likely to raise its 2021 GDP growth forecast of 5.0%
- Consumers look well-placed to play a key role in the UK recovery given the recent high savings ratios, especially as it now looks likely that unemployment will rise much less than had been forecast. After an extended period of weakness, business investment is also expected to gain momentum over the course of the year as companies grow more confident in the economy; this should be supported by the Budget’s investment incentives.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The ‘flash’ purchasing managers’ survey for the UK manufacturing and services sectors indicated that overall activity rose appreciably in March, having almost stabilised in February after contracting at the fastest rate for eight months in January. March’s improved performance occurred despite lockdown continuing, apart from the opening up of schools early on in the month.
“The composite output index for manufacturing and services reached a seven-month high of 56.6 in March, up from 49.6 in February and an eight-month low of 41.2 in January. This took the composite output index well above the 50.0 level that indicates flat activity.
“Nevertheless, the first quarter average for the composite output index was 49.1, pointing to slight contraction.
“Joint new orders grew for the first time in six months and at the second fastest rate in four years, due to a marked pick-up in domestic demand. Markit attributed this to ‘a rebound in sales ahead of easing lockdown measures,’ as well as stronger consumer confidence and growing demand for residential property services. While export orders fell for a third month running in March, employment rose for the first time in 13 months.
“Another positive development saw confidence improve to the highest level since the series began in July 2012. This primarily reflected hopes that the roll-out of the COVID-19 vaccines would boost economic activity over the longer-term. However, some concerns were expressed about the long-term impact of Brexit and supply chain delays.
“Input prices rose at the fastest rate since February 2017. This led to output prices rising at the fast pace for over three years as companies looked to pass on increased costs.”
March services PMI points to clear growth
Howard Archer continues: “Services activity picked up in March to grow at the fastest rate for seven months. Activity had previously almost stabilised in February following the fastest contraction in January since last May. Markit reported that businesses were able to plan again ahead of restrictions being lifted, while consumers began to book restaurant places and holidays.
“Specifically, the services PMI rose to 56.8 in March from 49.5 in February and an eight-month low of 39.5 in January.”
Manufacturing PMI at 40-month high
Howard Archer comments: “The March survey pointed to the manufacturing sector expanding at the fastest rate for 40 months. The PMI rose to 57.9 from 55.1 in February and a three-month low of 54.1 in January.
“Output growth improved to a three-month high in March, with the index rising to 55.6 from a nine-month low of 50.5 in February. New business rose for a second month running in the latest survey and was at a three-month high after contraction in January – which had been the first decline since June. Export demand rose slightly after falling in February.
“Backlogs of work increased at the fastest rate since May 2010, which is supportive to future output. Meanwhile, jobs rose at the fastest rate for just over three years, confidence in prospects for the next 12 months rose to the highest level since April 2014, and input prices rose at fastest rate since January 2017.”