UK PMIs: Business activity contracts in lockdown but beats forecasts
UK business activity contracted sharply last month as a result of the second national lockdown, but came in well ahead of analysts’ fears.
The IHS Markit/Cips purchasing managers (PMI) index for services fell to 47.6 in November, with any score below the 50 mark indicating contraction.
The reading was down considerably on October’s score of 51.4, and marked the fifth consecutive month of contraction since June.
However, the latest reading was higher than the earlier ‘flash’ estimate in November (45.8) and signalled a much slower downturn in business activity than the survey-record low seen 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.
“However, the collateral damage on areas outside of hospitality, leisure and travel has been far more modest than in the first lockdown period.
“Back in April, nearly 80 per cent of all service providers reported a monthly drop in business activity, while the equivalent figure was only 30 per cent in November.”
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But Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said the figures were an understatement of the damage the second lockdown had done.
He explained: “We doubt that the drop in GDP in November was as modest as the composite PMI implies. Many businesses that were forced to close last month during the second lockdown will have seen revenues drop to near-zero.
“The PMI, however, merely reflects whether firms’ activity is rising or falling, not by how much. Its past relationship with the GDP data, therefore, is bound to understate the damage caused by the lockdown, because in usual downturns struggling businesses suffer much more modest declines in revenues.”
The decline was led by a fall in overseas bookings due to the month-long restrictions in international travel.
In addition, the lockdown saw an increase in the rate at which jobs were being lost across the services sector.
Business activity in the UK came in well ahead of its peers in the Eurozone, which recorded a reading of 41.7.
Chris Williamson, Chief Business Economist at IHS Markit said: “The eurozone economy slipped back into a downturn in November as governments stepped up the fight against COVID-19, with business activity hit once again by new restrictions to fight off second waves of virus infections.