UK private sector output growth hits five-year high in July

According to the report from IHS Markit / CIPS, July data indicated a marked improvement in business conditions across the UK private sector economy following the easing of lockdown measures to contain the spread of the coronavirus disease 2019 (COVID-19). The latest survey indicated a return to growth for the service sector and a much faster rise in manufacturing production than seen in June.

At 57.1 in July, up from 47.7 in June, the headline seasonally adjusted Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – registered above the 50.0 no-change value for the first time since February. Moreover, the index has now risen for three months running after hitting a survey-record low of 13.8 in April. The July expansion was the fastest recorded since June 2015.

Survey respondents commented on a gradual increase in business activity following the lockdown period during the second quarter of 2020, helped by returns to work and a phased reopening of the wider UK economy. There were also some reports that clients had started to take a more long-term view when considering their spending plans.

However, service providers often noted that business capacity remained limited and operating costs had risen due to COVID-19 mitigation efforts, while those in the manufacturing sector also commented on the likelihood of a slow return to output levels seen prior to the pandemic. UK private sector firms indicated a solid rebound in new order volumes during July, especially from domestic customers. That said, employment numbers continued to fall sharply, with the rate of job shedding accelerating since the previous month. Lower staffing levels were typically linked to redundancies in response to subdued workloads and higher operating costs. Business sentiment towards the year ahead outlook remained well above the low point seen during March. However, the speed of recovery moderated in July, as signalled by this index rising only slightly since the previous month.