UK Economic Growth Surge Loses Momentum At End Of Third Quarter

 | Sep 24, 2020 08:00

  • 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in services, where the restaurant sector in particular saw demand fall sharply as the Eat Out to Help Out scheme was withdrawn.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.