UK private sector signals fastest output growth for more than two decades

According to the report from IHS Markit / CIPS, business activity across the UK private sector expanded at a rapid pace in May. The rate of expansion was the fastest since the UK Composite Output Index began in January 1998, reflecting strong contributions from both manufacturing and services activity.

Looser pandemic restrictions and high levels of pent up demand meant that a swift turnaround in labour market conditions continued in May, with private sector employment rising at the quickest pace since June 2014. However, cost pressures were the strongest for nearly thirteen years. Subsequent efforts to protect margins resulted in the sharpest increase in average prices charged by UK private sector firms since this index began in November 1999.

The headline seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index rose to 62.0 in May, from 60.7 in April, to signal the fastest rate of growth since the index was first compiled more than two decades ago. Survey respondents widely commented on a post-lockdown bounce in business and consumer confidence, alongside higher output levels due to the phased reopening of customer-facing areas of the UK economy.

May data pointed to the fastest increase in average cost burdens across the UK private sector since August 2008. Manufacturers mostly commented on price pressures due to shortages of raw materials and high shipping costs, while service providers often noted increased staff salaries. Strong customer demand helped to confer a greater degree of pricing power to private sector businesses in May, as signalled by the strongest rate of output charge inflation since this index began nearly 22 years ago.