UK firms see sharp August upturn but job cuts mount, PMI shows

(C) Reuters. The outbreak of the coronavirus disease (COVID-19), in London

By Andy Bruce

LONDON (Reuters) – The recovery among British businesses from the shock of the COVID-19 pandemic quickened again in August, but snowballing job cuts sent an ominous signal for the months ahead, a survey showed on Friday.

The early reading of the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI), covering the services and manufacturing sectors, shot up to a nearly seven-year high of 60.3 from 57.0 in July, far above the 50 threshold for growth.

A Reuters poll of economists had pointed to a reading of 57.1.

While the PMI indicated a further acceleration of growth, it did not signal a return to normal levels of output across businesses, which some economists think could take years.

“There were encouraging signs that customer-facing service providers have started to catch up with the rebound seen earlier this summer across the wider economy,” said Tim Moore, economics director at IHS Markit, which compiles the survey.

He cited a further easing of lockdown measures and the government’s “Eat Out to Help Out” scheme, which subsidises restaurant meals, as helping to boost growth during August.

Nonetheless, there were widespread worries among companies that the recovery might fade in the coming months, with the government’s job protection scheme set to close at the end of October.

The PMI showed companies in both the services and manufacturing sectors cut jobs at a faster pace in August – echoing the almost daily announcements of lay-offs among many of Britain’s biggest companies.

Economists polled by Reuters this month thought it would take at least two years for Britain’s economy to recover the output lost during the pandemic, with a contraction of almost 10% in store for 2020. [ECILT/GB]

The PMI for the services sector, which comprises the bulk of Britain’s economy, rose to a six-year high of 60.1 in August from 56.5 in July – again better than expectations for a reading of 57.0.

Still, business expectations for the year ahead cooled slightly as companies fretted over the outlook.

Factories reported a better August too. The manufacturing PMI rose by two points to 55.3, its highest level since February 2018.