England’s November lockdown resulted in a smaller blow to UK services activity than initial estimates suggested, while news of a coronavirus vaccine improved sales and employment expectations for next year, according to survey data.
The IHS Markit services purchasing managers’ index, a measure of the sector’s economic health, fell to 47.6 in November from 51.4 the previous month, the lowest level since May. However, the figure was higher than the initial estimates of 45.8 and well above the low of 13.4 in April.
Tim Moore, economics director at IHS Markit, which compiles the survey, said: “New lockdown measures and tighter pandemic restrictions unsurprisingly tipped UK private sector output back into decline during November.
“Overall service sector output was still severely impacted” but many businesses “commented on successfully adapting to the new lockdown restrictions and seeing a reduced impact on client spending than initially expected”, he added.
According to the report, 30 per cent of all services providers reported a monthly drop in business activity in November, compared with 80 per cent in April, when the national lockdown involved the closure of schools, factories and building sites, which remained open in the autumn.
However, the reading was still well below the 50 mark, indicating that a majority of businesses reported a drop in activity. Moreover, the index does not track the retail sector, which was badly affected by the restrictions, suggesting that survey underestimates the hit to the sector.
As services account for about 80 per cent of the UK economy, the fall points to a new contraction in the economy in the final quarter of the year after the rebound in the three months to September.
The composite PMI index, an average of the services and manufacturing sectors was also released on Thursday and was revised up to 49, from the initial estimate of 47.4, boosted by a strong PMI reading for manufacturing earlier in the week. Factory activity came in at 55.6, boosted by buying ahead of the end of the Brexit transition period.
Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, estimated that UK economic output fell by about 5 per cent in November and would rebound by 4 per cent in December.
The IHS Markit survey also showed businesses across both manufacturing and services reporting the strongest sentiment for the year ahead since March 2015, with respondents citing the news of a Covid-19 vaccine and hopes for a recovery in the global economy.
A brighter business outlook was confirmed by the Bank of England monthly decision maker panel survey of nearly 3,000 chief financial officers of UK businesses between November 6 and 20, a period that included the announcement of the successful trial of a Covid-19 vaccine by Pfizer and Moderna.
The survey found that UK businesses expected the coronavirus crisis to result in an 11 per cent fall in sales in the first quarter of next year compared with what would have been the case without the pandemic. This is a 3 percentage points milder contraction than estimated in October’s survey.
For the second quarter of next year, sales expectations were revised up by 6 percentage points.
Businesses were also less pessimistic about the impact of the pandemic on employment, with the survey showing a milder contraction in jobs than previously thought for the first six months of 2021.
However, the brighter mood was not enough to lift investment expectations. Businesses expected the pandemic to result in 22 per cent less investment in the first three months of next year, 6 percentage points lower than they expected in October.
UK business investment has fallen more than total output this year and has contracted more than in peer countries, limiting the potential for economic growth after the pandemic
Source: Economy - ft.com
