UK business activity growth slows as new Covid-19 restrictions take effect

UK business activity growth slows as new Covid-19 restrictions take effect

Growth in business activity in the UK slowed in September, according to a closely watched survey that indicated a summer economic surge was at risk from new restrictions to curb coronavirus.

The IHS Markit/Cips UK flash, or interim, composite purchasing managers’ index for September fell to 55.7, from a 72-month high of 59.1 in August, as business leaders reported a fall in optimism and consumer confidence. A reading above 50 indicates the majority of respondents, from the services and manufacturing sectors, reported increased month-on-month activity.

Though much improved from the survey-record low of 13.8 in April, and signalling that activity continued to grow, the reading showed faltering optimism after a summer of renewed confidence.

“The UK economy lost some of its bounce in September, as the initial rebound from Covid-19 lockdowns showed signs of fading,” said Chris Williamson, chief business economist at IHS Markit.

Consumer spending rose sharply in July and August as people enjoyed a relaxation of restrictions, and the “eat out to help out” discount scheme encouraged people to buy meals in restaurants and cafés. But a rise in coronavirus cases and the end of the government incentive meant growth slowed again this month, prompting Bank of England governor Andrew Bailey to warn that the “harder yards are ahead of us”.

The flash reading, based on 85 per cent of the usual monthly responses, was taken before the prime minister announced further restrictions to control coronavirus on Tuesday. Thomas Pugh, UK economist for the consultancy Capital Economics, said the drop in sentiment ahead of new rules suggested the recovery has “already started to flatten out”.

“Reinstating restrictions on business opening hours and encouraging people to work from home again could cause the recovery to stall completely in Q4,” he said.

Responses from the PMI survey indicated September’s slowdown had been particularly acute in the services sector, where confidence, especially in areas such as transport, international travel and hospitality, eased to a four-month low.

More positive responses came from managers in manufacturing, with some reporting that the release of pent-up demand and an increase in orders from Asia had prompted them to increase capacity. About 60 per cent of respondents in the sector expected a rise in output across the next year.

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Falling employment, which continued to drop across sectors, was also sharpest in services. Employers said the impending end of the furlough scheme had forced them to accelerate staffing decisions.

“The indication from the survey (is) that growth momentum is quickly lost when policy support is withdrawn,” Mr Williamson said. “(This) raises fears that growth could fade further as we head into the winter months, especially as lockdown measures are tightened further.”