Market news

23 November 2020

UK private sector output fell the most since May

According to the report from IHS Markit/CIPS, business activity across the UK private sector decreased in November, which ended a four-month period of expansion. The downturn was driven by the fastest reduction in service sector output since May amid temporary business closures among leisure and hospitality companies. In contrast, manufacturing production expanded at a robust pace during November and the rate of growth accelerated since the previous month. The latest manufacturing PMI survey nonetheless pointed to a sharp lengthening of supplier delivery times amid severe delays at UK ports, alongside a robust degree of stock building as manufacturers sought to accumulate critical inputs before the end of the Brexit transition period on 31st December 2020.

Adjusted for seasonal influences, Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – dropped from 52.1 in October to 47.4 in November and pointed to the sharpest downturn in overall business activity since May. The underperformance of the service economy (45.8) relative to the manufacturing sector (56.3) was the widest in almost 25 years of data collection, reflecting the severe impact on business activity from a second lockdown in England and tightened COVID-19 restrictions across the rest of the UK.

Manufacturing growth was mainly linked to a sustained recovery in production volumes after stoppages at the start of the pandemic. Survey respondents also commented on rising demand from export markets, especially in China and the EU. The latter was often linked to pre-purchasing due to Brexit uncertainty as European customers sought delivery of orders before the end of the transition period. 

Looking ahead, private sector companies remain optimistic that business activity will increase during the next 12 months. The degree of optimism improved since October and was the strongest since March 2015. While some firms simply commented on an expected rebound from low levels of activity in November, there were also widespread reports that hopes of an end to COVID-19 restrictions and positive vaccine news had spurred business confidence about the year ahead. 

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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