Market news

22 January 2021

UK private sector output fell the most since last May

According to the report from IHS Markit/CIPS, UK private sector companies signalled a renewed downturn in business activity during January, which largely reflected national lockdown restrictions due to the coronavirus disease 2019 (COVID19) pandemic. The service economy was hard-hit by restrictions on trade and reduced consumer spending at the start of the year, with business activity falling at the fastest pace for eight months. Manufacturers recorded a fractional rise in production volumes, but the rate of expansion eased sharply since December. Weaker export orders and short-term supply chain difficulties contributed to the slowdown in output growth, according to survey respondents. Apart from April 2020, latest data pointed to the largest increase in suppliers' delivery times since the UK Manufacturing PMI survey began almost 30 years ago.

Despite a swift return to falling business activity at the beginning of the year, latest data indicated that UK private sector companies remain upbeat about their prospects on a longer-term basis. The index measuring business expectations for the next 12 months picked up slightly since December and was the highest since May 2014. Continuing the trend seen in recent months, survey respondents overwhelmingly attributed their positive business expectations to a successful vaccine roll-out during 2021.

The headline seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – registered 40.6 in January, down sharply from 50.4 in December and well below the neutral 50.0 threshold. The index was the lowest since May 2020 and much weaker than in the second national lockdown period during November (49.0). However, the speed of the downturn in UK private sector output was still softer than at the start of the pandemic (13.8 in April 2020), with many businesses citing successful efforts to adapt and prepare for new COVID-19 restrictions.

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