A pedestrian walks along an empty street in Covent Garden, London. The data mark the first comprehensive economic measure of the impact of the lockdown introduced in England on November 5
The PMI data mark the first comprehensive economic measure of the impact of the lockdown introduced in England on November 5 © Chris Ratcliffe/Bloomberg

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The new lockdown in England caused activity in the dominant UK services sector in November to fall to its lowest level since the spring, pointing to a double-dip economic downturn at the end of the year despite stockpiling helping to boost manufacturing.

The flash, or interim, IHS Markit/Cips services purchasing managers’ index, a measure of the sector’s economic health, fell to 45.8 in November from 51.4 the previous month, the lowest level since May.

Chris Williamson, chief business economist at IHS Markit, said: “A double-dip is indicated by the November survey data, with lockdown measures once again causing business activity to collapse across large swaths of the economy.”

While well below the 50 mark, which indicates a majority of businesses reporting a contraction compared with the previous month, the reading was not as dire as economists’ forecasts, reflecting the looser curbs in the second lockdown in England and the easing of some restrictions elsewhere, particularly in Wales.

The rate of job shedding across the services sector accelerated to the highest level since August, and almost one in three responders reported a decline in employment, IHS Markit data showed.

Line chart of purchasing managers' index (below 50 = a majority of businesses reporting a contraction) showing fall in UK services activity

Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said the figure “suggests that the chancellor’s decision to extend the coronavirus job retention scheme until the end of [March 2021] has done little to stem the flow of redundancies”. He expected the unemployment rate to rise to about 6.5 per cent in the spring.

The PMIs mark the first comprehensive economic measure of the impact of the lockdown introduced in England on November 5 that forced most consumer services businesses, such as bars and restaurants, to close to sit-in customers.

The flash estimate was based on data collected between November 12 and 19.

Services account for about 80 per cent of the UK economy and the sharp drop in the services PMI points to a new contraction in the economy in the final quarter of the year after the rebound in the three months to September.

However, the flash reading was better than the 42.5 forecast by economists polled by Reuters and also well above the low of 13.4 seen in the spring’s lockdown, reflecting more targeted restrictions that left schools and many businesses open and looser restrictions in some parts of the country.

James Smith, economist at investment bank ING said: “The deterioration is considerably less severe than we saw during the first round of restrictions back in the spring.” He said it pointed to a much milder contraction in gross domestic product, of about 6 to 7 per cent, in November compared with 19.5 per cent in April.

The manufacturing sector bucked the services trend, and growth accelerated with the corresponding PMI rising to 55.2 in November, up from 53.7 the previous month.

Manufacturers who took part in the survey mentioned rising demand from export markets, especially in China and the EU, the report showed. Demand from the EU was often linked to pre-purchasing due to Brexit uncertainty as customers sought delivery of orders before the end of the transition period on December 31.

UK factories also reported the strongest increase in pre-production inventories since October 2019 as they build up critical inputs before the end of December.

The composite index, an average of manufacturing and services, fell to 47.4 in November, down from 51.1 the previous month; it was the lowest reading since May and the first under the 50 mark since June.

Despite depressed service activity levels, the degree of optimism among UK businesses was the strongest since March 2015, with some expecting a rebound from November and many reporting hopes that a vaccine would result in an end to Covid-19 restrictions.

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