Rapid downturn in UK private sector output continues in May

According to the report from IHS Markit / CIPS, UK private sector output remained on a steep downward trajectory in May. The rate of decline in overall business activity eased since April, but was much faster than at any other time since comparable data were first compiled in January 1998.

The headline seasonally adjusted UK Composite Output Index – which is based on approximately 85% of usual monthly replies - registered 28.9 in May, to remain well below the crucial 50.0 no change threshold. Although the index was up from 13.8 in April, the latest reading still signalled a far steeper pace of contraction than at the worst point of the global financial crisis (index at 38.1 in November 2008). Lower volumes of business activity were again almost exclusively linked to business shutdowns, cancellations of customer orders and a general slump in demand amid the coronavirus disease 2019 (COVID-19) pandemic.

May data also signalled rapid declines in new work and employment across the UK private sector, with both rates of contraction the second-fastest in more than 20 years of data collection (exceeded only by that seen in April). 

Average prices charged were cut again in May, largely reflecting discounting strategies across the service economy in response to a slump in sales volumes. 

Meanwhile, the index measuring business expectations for the next 12 months continued to improve from the series record low seen in March. Survey respondents nonetheless widely commented on concerns that customer demand would take a long time to recover to levels seen before the public health crisis, with some service sector companies still deeply pessimistic about their near-term prospects.