- Encouraging news to support belief that the UK economy is achieving robust second quarter growth amid reduced restrictions, as the flash purchasing managers survey showed the composite output index for manufacturing and services rose to a record 62.0 in May from 60.7 in April and 56.4 in March
- The services sector grew at the fastest rate for 91 months, with the PMI improving to 61.8 in May from 61.0 in April and 56.3 in March
- The manufacturing sector grew at a record rate in May (the series started in January 1992) as the PMI increased to 66.1 from 60.9 in April
- Other elements of the survey relating to orders, backlogs of work, employment and confidence were at, or near, record levels in May, boding well for future activity
- However, there are still concerns about supply chain delays among manufacturers, while strong increases in input and output prices will likely add to increasing concerns over inflation
- Even allowing for the fact that the purchasing managers’ surveys can overstate movements in the economy at times of rapid change, the elevated levels of the May PMIs are particularly impressive
- The very healthy May purchasing managers’ survey supports the EY ITEM Club’s upgrading of its 2021 GDP growth forecast to 6.8% – growth could even end up higher than this
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 May. The economy, and the services sector in particular, benefited from the easing of restrictions.
“The composite output index for manufacturing and services improved to a series high – the survey started in January 1998 – of 62.0 in May from 60.7 in April, 56.4 in March, 49.6 in February and an eight-month low of 41.2 in January. May’s figure was substantially above the 50.0 level that indicates flat activity.
“The increase in output was attributed to improved consumer and business confidence, alongside the phased reopening of customer-facing areas of the UK economy.
“Joint new orders grew at a very strong rate, primarily due to a further pick-up in domestic demand. Backlogs of work also increased at a record rate.
“Employment rose for a third month running after a year of contracting, and at the fastest rate since June 2014. This added to the recent encouraging data on the labour market.
“Another positive development saw confidence strengthen to the highest level since the series began in July 2012, primarily reflecting improved orders and an upbeat view of the outlook.
“Not so good news saw input prices rise at the fastest rate for nearly 13 years. Markit reported that ‘Manufacturers mostly commented on price pressures due to shortages of raw materials and high shipping costs, while service providers often noted increased staff salaries’.
“This led to output prices rising at the fastest rate since the index began in November 1999 as companies looked to pass on their increased costs. There are also still concerns about supply chain delays among manufacturers.”
April services PMI points to fastest growth for 91 months
Howard Archer continues: “Benefitting from eased restrictions, services activity picked up further in May, after marked improvement in April, to grow at the fastest rate for 91 months. Markit reported this was ‘helped by the partial reopening of the hospitality sector and roll back of pandemic restrictions, alongside strong rises in spending by both consumers and businesses in May’.
“The services PMI rose to 61.8 in May from 61.0 in April, 56.3 in March, 49.5 in February and an eight-month low of 39.5 in January.
“New business in the services sector grew for a third successive month in May and at the fastest rate for nearly seven-and-a-half years. Backlogs of work rose at the fastest rate for nearly seven-and-a-half years, while employment rose at the fastest rate since May 2015.”
Manufacturing PMI at record high
Howard Archer comments: “The ‘flash’ purchasing managers survey pointed to the manufacturing sector expanding at a record rate – the series started in January 1992 – as the PMI increased to 66.1 from 60.9 in April from 58.9 in March, 55.1 in February and a three-month low of 54.1 in January.
“While Markit noted the manufacturing PMI saw elevated output, new orders and employment indices, it was also reported that ‘the exceptionally high PMI reading also reflected a rapid lengthening of suppliers' delivery times during May’.
“Output growth was at a 93-month high in May with the index climbing to 63.2 from 59.1 in April from a nine-month low of 50.5 in February. Food and drink manufacturers saw particularly strong growth due to the reopening of hospitality businesses.
“New orders grew at a record rate. Markit reported a ‘rapid upturn in domestic demand was reported by manufacturing companies, driven by sales related to the reopening of the UK economy, especially the hospitality sector.’
“While domestic demand improved markedly, there was also a strong pick-up in foreign orders. Meanwhile, input costs rose at a record rate due to strong demand for manufacturing inputs, higher transport bills and an increase in commodity prices.”