UK Flash PMIs better-than-expected as all sectors return to growth although hiring remains weak

Flash estimates released this morning by IHS Markit revealed forecast-beating results across both manufacturing and services in the UK.

The Manufacturing PMI rose to 53.6 in July from 50.1 in June, beating expectations for 52. The Services PMI rose to 56.6 in July from 47.1 in June, beating expectations for 51.1, and marking the first time services activity had grown since February.

The composite index (services and manufacturing combined) jumped almost 10 points rising from 47.7 in June to 57.1 in July.

Although the data may be preliminary, these figures, as compared to the magnitude of previous revisions, are unlikely to be revised substantially lower thus one can be confident the data confirms a strong rebound in overall activity.

Services

The UK Services Business Activity index rose the most in five years from 47.1 in June to 56.6 in July, as both businesses and their clients reopened and returned to work at their sites.

The number of services subsectors that have reopened or are reopening broadened during the period, particularly among leisure-related companies, as the UK government announced outdoor pools could reopen from 11^th July and indoor gyms, pools and leisure centres on 25^th July.

Concerningly, however, was services businesses reporting lower demand than they were expecting. New orders rose only slightly on the previous month, which has had a knock-on effect on employment with firms predominantly opting to either hire conservatively or shed jobs.

Although last month’s report indicated that job cuts were slowing down, the rate of redundancies actually increased in July as 34% of 650 services businesses surveyed reported a fall in employment, while only 10% reported an increase.

Manufacturing

The Manufacturing Output index increased at the fastest pace since November 2017, rising from 50.7 in June to 59.8 in July.

The headline figure of 53.6 in July (50.1 in June) was the highest since March 2019, but could have been even higher had it not been for sharp falls in employment.

Despite this, however, new orders started rising again for the time in 5 months, as supply chains reopened and customer demand returned.

Business optimism for the next twelve months rose to its highest level since September 2014, as 66% of the 650 manufacturing firms surveyed forecast increased production levels, while just 12% expect a decline.