UK Services PMI falls, however Business Optimism highest since May 2014...

UK Services PMI fall, however Business Optimism highest since May 2014.....

According to the latest IHS Markit / CIPS Flash UK Composite PMI bulletin; “Despite a swift return to falling business activity at the beginning of the year, latest data indicated that UK private sector companies remain upbeat about their prospects on a longer-term basis. The index measuring business expectations for the next 12 months picked up slightly since December and was the highest since May 2014. Continuing the trend seen in recent months, survey respondents overwhelmingly attributed their positive business expectations to a successful vaccine roll-out during 2021.” (source: 22nd January 2021  HIS/Markit CIPS composite PMI bulletin)

The current PMI figures clearly reflect the effect of the latest COVID-19 lockdown, the survey goes on to say “UK private sector companies signaled a renewed downturn in business activity during January, largely reflecting national lockdown restrictions. "The headline seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – registered 40.6 in January, down sharply from 50.4 in December and well below the neutral 50.0 threshold."

"The Service economy was hard-hit by restrictions on trade and reduced consumer spending at the start of the year, with business activity falling at the fastest pace for eight months." (Flash UK Services Business Activity Index Jan: 38.8, 8-month low (Dec final: 49.4))

“Manufacturers recorded a fractional rise in production volumes, but the rate of expansion eased sharply since December. Weaker export orders and short-term supply chain difficulties contributed to the slowdown in output growth, according to survey respondents. Apart from April 2020, latest data pointed to the largest increase in suppliers' delivery times since the UK Manufacturing PMI® survey began almost 30 years ago." (Manufacturing Output Index Jan: 50.3, 8-month low (Dec final: 55.9))

Commenting on the latest figures, Duncan Brock, Group Director at CIPS, said: “This is a sudden blow to the UK economy as recovery in the two sectors lost its momentum after some improvement at the end of last year. Affected by consumer caution and dried-up pipelines of new work from domestic and export customers, new orders dropped to an extent not seen since May, underlining the continuing instability in a marketplace no longer propped up by pre-Brexit stockpiling or reduced restrictions on business conditions.”

On a more positive note, he said; “though worrying, this was not an unexpected downturn from businesses ravaged by restrictions, lockdowns and post-Brexit disruption. But with the highest level of business optimism since May 2014, firms are keeping their plates spinning and responding as well as can be expected to the changing environment, placing hope in vaccine programmes bringing more normality soon."

Chris Williamson, Chief Business Economist at IHS Markit, said: “A steep slump in business activity in January puts the locked down UK economy on course to contract sharply in the first quarter of 2021, meaning a double-dip recession is on the cards. “Services have once again been especially hard hit, but manufacturing has seen growth almost stall, blamed on a cocktail of COVID-19 and Brexit, which has led to increasingly widespread supply delays, rising costs and falling exports.

However, he goes on to say; “encouragingly, the current downturn looks far less severe than that seen during the first national lockdown, and businesses have become increasingly optimistic about the outlook, thanks mainly to progress in rolling out COVID-19 vaccines. Business hopes for the year ahead have risen the highest for over six-and-a-half years, boding well for the economy to return to solid growth once virus restrictions ease.”