United Kingdom: Services and manufacturing PMIs rise further in March
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) rose from 49.5 in February to 56.8 in March. At first glance the rise appears contradictory, given that the economy remained under a strict lockdown in the month, with non-essential shops and the hospitality sector closed. The improvement was driven by stronger new business, as the government’s roadmap out of lockdown provided greater clarity to consumers and supported sentiment. Employment also returned to growth.
Meanwhile, the manufacturing PMI rose from 55.1 in February to 57.9 in March. The increase was driven by stronger production and new orders growth, and the fastest rise in employment in over three years. However, the reading was flattered by rising delivery times artificially boosting the headline reading. Normally, longer delivery times are indicative of strong demand, although in March they were largely attributed to shipping delays and Brexit-related trade frictions.
According to Chris Williamson, chief business economist at IHS Markit:
“The surge in business activity is far stronger than any economists expected, according to Reuters polls, and hints at only a modest contraction of GDP during the first quarter, adding to evidence that the economy has shown far greater resilience in the third lockdown compared to the first.”
However, analysts at Oxford Economics commented: “The flash PMI reported a surprise surge in activity in March, despite there being no relaxation of lockdown restrictions in sectors covered by the survey. Though we are bullish on 2021 growth prospects, the PMIs have been unreliable during the pandemic, so we would caution against getting carried away by these results.”