British businesses experienced the fastest upturn in five years during July as more of the economy reopened from the coronavirus lockdown, a closely-watched survey showed on Friday.
An early “flash” reading of the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI) shot up to 57.1 from 47.7 in June, its highest level since June 2015 and above the 50 threshold for growth for the first time since lockdown began in March.
The figure was better than all forecasts in a Reuters poll of economists that had pointed to a reading of 51.1.
“The surge in business activity in July will fuel expectations that the economy will return to growth in the third quarter after having suffered the sharpest contraction in modern history during the second quarter,” said Chris Williamson, chief business economist at PMI compiler IHS Markit.
Official data showed Britain’s economy shrank by more than 25% in March and April, and recovered less than expected in May.
While the PMI indicated a quickening of growth, it did not signal a return to normal levels of output across businesses – which some economists think could take years.
A Reuters poll this week suggested the economy looks on track to contract by more than 9% this year, its biggest downturn since the 1920s.
“Even with the July rebound there’s a long way to go before the output lost to the pandemic is regained and, while businesses grew more optimistic about the year ahead, a V-shaped recovery is by no means assured,” Williamson said.
The survey’s gauge of employment worsened in July, chiming with other indicators that suggest a wave of job cuts is on the way. Government budget forecasters have warned the jobless rate could rise to its highest since the mid-1980s by the end of the year after a job support programme ends in October.
On Thursday Bank of England interest-rate setter Jonathan Haskel said he was worried that Britain’s economic recovery from the coronavirus crisis could be slow and it would depend heavily on whether people felt confident that it was safe to go out.
The PMI for the services sector, which comprises the bulk of Britain’s economy, rose to 56.6 in July from 47.1, the highest reading in five years and topping all forecasts in the Reuters poll.
Still, IHS Markit said it received reports that demand had been weaker than expected for some services businesses returning from lockdown, which lifted for bars and restaurants on July 4.
Factories also reported a better July. The factory PMI rose to 53.6 from 50.1 in June, its highest level since March 2019.