The UK economic recovery will be “fast and full”, economic data suggested on Friday, as businesses reported the strongest pace of growth in activity in more than 20 years and official figures showed shoppers heading to newly reopened stores in “hordes”.
The flash, or interim, composite purchasing managers’ index, published by research group IHS Markit and the Chartered Institute of Procurement and Supply, rose to 62 in May, up from 60.7 the previous month, marking the highest reading since records began in January 1998.
Meanwhile, the volume of retail sales in Britain grew 9.2 per cent in April compared with the previous month, the Office for National Statistics reported, more than double the 4.5 per cent expansion forecast by economists polled by Reuters.
Chris Williamson, chief business economist at IHS Markit, said: “The UK is enjoying an unprecedented growth spurt as the economy reopens.” He added that “the output and order book growth seen in May, and record level of business optimism, are consistent with GDP rising sharply in the second quarter”.
Paul Dales, chief UK economist at consultancy Capital Economics, said the data supported his view that “the recovery would be fast and full” and the economy could return to its pre-Covid peak earlier than previously expected.
Philip Shaw, chief UK economist at wealth management group Investec, forecast the UK economy will grow 7.5 per cent in 2021, but said there was “a realistic possibility that growth will exceed 8 per cent”.
The PMI survey, based on data collected between May 12 and 19, partially reflected the reopening of hotels, indoor hospitality and other businesses on May 17. It showed that business confidence hit an all-time high as concerns about the impact of the pandemic continued to fade.
Factory orders surged at a record pace, reflecting improved global demand, while the services sector reported near-record growth as the opening up of the economy allowed more businesses to trade.
The PMI index for services, which account for about 80 per cent of the economy, rose to 61.8 in May from 61 the previous month with growth resulting in the fastest pace of job creation since May 2015.
The strongest upturns in demand were for hotels, restaurants and other consumer-facing services, but improvements were reported across the whole sector.
The PMI manufacturing index jumped to 66.1 in May from 60.9 in the previous month helped by steep increases in output, new orders and employment. Manufacturers noted a sharp improvement in demand from the US and China, as well as an easing in Brexit-related difficulties when exporting to the EU.
However, the PMI also signalled cost pressures rising at the fastest pace in 13 years. Manufacturers mostly commented on price pressures due to shortages of raw materials and high shipping costs, while service providers noted increased staff salaries.
Jai Malhi, global market strategist at JPMorgan Asset Management, said the data “will do little to ease recent market fears that inflation will be an unwelcome guest at the party”.
Fears of rising price pressures were supported by strong consumer demand, as revealed by official data. Retail sales rose to more than 10 per cent above pre-pandemic levels in April as restrictions eased and more shops were able to open their doors from the middle of the month.
Clothing sales soared nearly 70 per cent to reach pre-pandemic levels for the first time since the initial restrictions were imposed in March last year. Sales of household goods were also strong, rising about 10 per cent compared with March.
Lynda Petherick, head of retail at the consultancy Accenture, said the data showed that consumers headed to the high streets “in hordes” and she expected sales to rise further in May as the reopening of the hospitality revives city centres.
Additional signs of the strength of the sector came on Friday from data published by research company GfK, which showed UK consumer confidence jumping in May, regaining the ground lost during the pandemic.
Simon Harvey, senior analyst at UK-based foreign exchange company Monex Europe, said that “any signs that the consumer is drawing down on savings quicker than policymakers are assuming (. . .) would stoke expectations in money markets of earlier rate hikes by the Bank of England”.
He added that it was still early “but the data places the UK’s economic rebound on a good footing”.
Source: Economy - ft.com
