By Andy Bruce
LONDON (Reuters) – A rush of new orders in anticipation of an easing of COVID-19 lockdown restrictions prompted a much stronger rebound for British companies than expected in March, a business survey showed on Wednesday.
The flash IHS Markit/CIPS UK Composite Purchasing Managers’ Index rose to a seven-month high of 56.6 in March from 49.6 in February. A Reuters poll of economists had pointed to a reading of 51.1.
Britain’s economy shrank by 10% last year – its sharpest decline in more than 300 years – and earlier this month government budget forecasters predicted it would take until the middle of next year before it regains its pre-pandemic size.
Confidence among British businesses had been bolstered by Britain’s swift roll-out of COVID-19 vaccines, one factor behind the first increase in employment since the start of the pandemic, the survey showed.
“The surge in business activity is far stronger than any economists expected, according to Reuters polls, and hints at only a modest contraction of GDP during the first quarter,” said Chris Williamson, chief business economist at IHS Markit.
The survey is likely to bolster confidence among Bank of England officials that the economy is on track for a swift recovery this year.
“The encouraging readings on future expectations, job creation and new order inflows meanwhile all point to robust economic growth in the second quarter, especially if virus restrictions are lifted further,” Williamson said.
The PMI does not cover British retailers, but separate figures from market research company GfK on Friday showed consumer sentiment was the strongest in over a year, again largely based on recovery hopes.
But companies still face difficulties – not least in the form of rising costs.
The PMI’s gauge of company input prices rose to a more than four-year high in March, with manufacturers citing increased costs from a global shipping shortage and customs delays.
The manufacturing sector, which represents around 10% of economic output, again outperformed the much larger services sector but by a much smaller margin than in previous months.
The factory PMI rose to its highest since November 2017 at 57.9 in March, up almost three points from February, while the services PMI rose to a seven-month high of 56.8 from 49.5 last month.
(Reporting by Andy Bruce; Editing by Catherine Evans)
