Manufacturing sector returns to growth in June as recovery gets underway

June 23, 2020 @ 13:47 by Richard Dawson

June data for private sector output shows a “vastly improved” overall picture for the UK economy, with the downturn in total business activity showing signs of stabilising after record declines in April and May.

Flash PMIs compiled by IHS Markit show four-month highs across all major indices in June.

The UK Composite Output Index rose to 47.6 from 30.0 in May while the UK Services Business Activity Index reached 47.0 from 29.0.

The UK Manufacturing Output Index and Manufacturing PMI both made it over the 50.0 threshold that separates growth from contraction, rising to 50.8 and 50.1 respectively.

It is important to remember that these figures will have to rise sharply above the 50.0 threshold for there to be any kind of v-shaped recovery, but it is encouraging to see a shift in momentum.

Rising 17.6 points from May to June, the headline UK Composite Index recorded its biggest month-on-month increase since records began.

Private sector firms also indicated a rebound in business expectations for the year ahead and said the easing of lockdown restrictions was having a favourable impact on economic activity.

That said, demand remained very subdued and this weighed on employment numbers, which will take longer to recover than activity.

Subdued demand also led to a squeeze on margins in June, with firms discounting products and services across the board.

Chris Williamson, chief business economist at IHS Markit, said: “June’s PMI data add to signs that the economy looks likely return to growth in the third quarter, especially given the further planned easing of the lockdown from July 4.

“June saw a record rise in the PMI for a second successive month, confirming that the economy is moving closer to stabilising after the worst of the immediate economic impact from the COVID-19 pandemic was felt back in April.

“However, while confidence is rising that the economy will soon return to growth as the lockdown continues to ease, the longer term recovery prospects remain highly uncertain.

“Our forecasting team therefore expects the economy to contract by 11.9 per cent this year before expanding by a relatively modest 4.9 per cent in 2021, which is far more cautious than the 15 per cent surge anticipated in 2021 by the Bank of England.”

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