UK economic pain eases somewhat in May but deep downturn continues
The UK economy thawed slightly in May from its April deep-freeze as the government eased some coronavirus restrictions, survey data has shown.
Yet the economy was still in a dire state, according to a preliminary reading of the IHS Markit/Cips purchasing managers’ index (PMI), which measures the health of the private sector.
The whole-economy PMI came in at 28.9 in May compared to 13.8 in April. A score below 50 indicates contraction. Despite the improvement, May’s reading was still far worse than anything seen during the financial crisis.
It comes as the UK eases some of its coronavirus restrictions. Prime Minister Boris Johnson has laid out a “roadmap” that has led to some construction and manufacturing work resuming. It could see non-essential shops open in June.
Yet data firm IHS Markit’s chief business economist Chris Williamson said the UK’s high infection rate would lengthen its recovery. The UK has suffered the second-highest number of coronavirus deaths of any country, at more than 34,000.
“The UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer Covid-19 cases,” Williamson said.
In the Eurozone, the composite PMI rose to 30.5 in May from 13.6 in April. All countries in the currency bloc have eased lockdowns in some way.
Today’s survey data painted a grim picture of the UK economy, even if it achieved a mild improvement after April’s total shutdown.
Companies again reported rapid declines in new work and said they had laid off workers at a dramatic rate. Yet the UK’s job retention scheme was also again highlighted as a lifeline for employers and employees.
Manufacturing decline slows as lockdown eased
The manufacturing sector performed better than services in May. This reflected the government’s change to the guidelines which allowed factories to go back to work.
It was also helped by a pick-up in the production of healthcare products. Yet it remained in a dire position by historical standards and continued to contract sharply.
Duncan Brock, group director at Cips, the Chartered Institute of Procurement and Supply, struck a pessimistic note. He said May’s PMI “does not signal that the pathway is clear for an improvement in the manufacturing and services sectors”.
“No new orders, premises shut down and furloughed staff unable to return to work were at the heart of the desolation as business struggled to continue with two hands tied behind their back.”
He raised concerns about the easing of lockdown measures, saying: “The danger on the horizon is a second wave of infections threatening the health of the nation and dampening consumer confidence still further.”
Andrew Wishart, UK economist at consultancy Capital Economics, said that although April may have marked the trough in activity, “social distancing restrictions are continuing to depress activity severely”.
He said he expects GDP to fall about 20 per cent quarter on quarter in the second quarter after the two per cent drop in the first three months of the year.