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Flash UK composite PMI down from six-year high of 59.1 to 55.7,
signals cooling rate of expansion
Manufacturing and services both report slower expansions,
latter hit by downturn in restaurants
Jobs continue to be cut at rate not seen for ten years prior to
the pandemic, though rate of decline eases
Outlook darkened by rising COVID-19 infection rates and new
restrictions
The UK economy lost some of its bounce in September, as the
initial rebound from coronavirus disease 2019 (COVID-19) lockdowns
showed signs of fading.
Output rebound loses momentum
At 55.7 in September, the headline seasonally adjusted IHS
Markit/ CIPS Flash UK Composite Output Index - which is based on
approximately 85% of usual monthly replies - remained above the
50.0 no-change mark for the third consecutive month, to signal a
sustained increase in private sector output. However, the latest
reading was down from a 72-month high of 59.1 in August and the
lowest since June, indicating a marked slowing in the rate of
expansion. Prior to the pandemic, the 3.4-point drop in the index
was the largest seen since 2016.
Where business activity growth was reported, survey respondents
often commented on successfully adapting to the constraints imposed
by the COVID-19 pandemic and a general boost from the reopening of
the UK economy. A number of manufacturers noted that pent up
customer demand, including a solid rise in exports, had encouraged
them to expand production capacity.
That said, there were widespread reports that a lack of consumer
confidence and persistent disruptions to business operations due to
the pandemic had held back the recovery in September.
It was not surprising to see that the slowdown was especially
evident in services, where the restaurant sector in particular saw
demand fall sharply as the Eat Out to Help Out scheme was
withdrawn. 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.
Encouragingly, robust growth in manufacturing, business services
and financial services offset the weakness in consumer-facing
sectors, meaning the overall rate of expansion remained comfortably
above the survey's long-run average, which adds to expectations
that the third quarter will see a solid rebound in GDP from the
collapse seen in the second quarter.
Jobs continue to be cut
Worryingly, jobs continued to be cut at a fierce rate in
September as firms sought to bring costs down amid weak demand,
meaning unemployment is likely to soon start rising sharply from
the current rate of 4.1%.
Although the latest reduction in headcounts was the least marked
since March, the rate of job losses remained higher than at any
time in the ten years prior to the pandemic.
Anecdotal evidence suggested that the forthcoming closure of the
government's furlough scheme had accelerated decision-making on
staffing levels, with firms typically commenting on redundancy
measures alongside the recall of some employees. Job cuts remained
much steeper in the service economy than the manufacturing
sector.
Outlook
A steadying of backlogs of work after steep falls in prior
months suggest that capacity and order books are now coming more
into line, which would normally lead to a further easing in the
need to cut jobs.
However, the indication from the survey that recovery momentum
is quickly lost when policy support is withdrawn underscores our
concern over the path of the labour market once the furlough scheme
ends next month, and raises fears that growth could fade further as
we head into the winter months, especially as lockdown measures are
tightened further amid the recent rise in COVID-19 case
numbers.
* COVID-19 containment index is based on information
relating to issues such as closures of schools, non-essential shops
and restaurants, as well as restrictions on public gatherings,
internal mobility and external borders. We also forecast how these
are expected to change in coming months, based primarily on
government announcements. A reading of 100 means severe
restrictions while a reading of zero indicate no
restrictions.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
