UK business activity grows at fastest pace in five years in July

Business activity in the UK grew at its fastest pace in five years in July as the coronavirus lockdown eased, according to flash figures released on Friday.

IHS Markit’s preliminary composite output index - which measures activity in services and manufacturing - rose to 57.1 from 47.7 in June, beating expectations for a reading of 51.1 and marking the fastest growth June 2015.

The reading was also above the 50.0 level that separates contraction from expansion for the first time since February and well above the record low of 13.8 seen in April.

The PMI for the services sector pushed up to a 60-month high of 56.6 in July from 47.1 the month before, while the manufacturing PMI rose to a 16-month high of 53.6 from 50.1.

Chris Williamson, chief business economist at IHS Markit, said: "The UK economy started the third quarter on a strong footing as business continued to reopen doors after the Covid-19 lockdown. The surge in business activity in July will fuel expectations that the economy will return to growth in the third quarter after having suffered the sharpest contraction in modern history during the second quarter.

"However, while the recession looks to have been brief, the scars are likely to be deep. Even with the July rebound there’s a long way to go before the output lost to the pandemic is regained and, while businesses grew more optimistic about the year ahead, a V-shaped recovery is by no means assured."

Williamson noted that new orders only rose modestly in July, suggesting that demand remains worryingly low at many firms.

Andrew Wishart, UK economist at Capital Economics, said: "The strong PMIs combined with retail sales returning to their pre-virus level in June may lead to hopes that the overall economy will get back to pre-crisis levels quickly.

"But the initial rebound was always going to be quick as the economy reopened. We think that the next leg will be slower as some sectors continue to be hampered by social distancing and some workers lose their job when the furlough scheme ends, meaning it will take until 2022 for GDP to recapture its pre-virus level."

Earlier, figures from the Office for National Statistics showed that retail sales continued to recover in June as non-essential shops reopened amid the lifting of coronavirus restrictions.

Retail sales rose 13.9% on the month following a revised 12.3% increase in May, beating expectations of an 8% jump. On the year, retail sales were down 1.6% in June, which was a big improvement on the 12.9% decline seen in May and better than expectations of a 6.4% fall.