The UK economy is firing on all cylinders as it emerges from months of lockdown, with the private sector expanding at the fastest pace in at least 23 years and retail sales surging.
IHS Markit said Friday that its measure of private-sector growth this month hit the highest since the index began in 1998, with hotels, restaurants and other consumer-facing services posting the strongest demand. Factory orders also surged at a record pace, while business confidence reached an all-time high.
Meanwhile, the Office for National Statistics said the volume of goods sold in shops and online surged 9.2% in April — more than double the pace anticipated by economists — as non-essential stores were allowed to reopen. A separate report showed consumer confidence jumped in May to levels last seen before the original lockdown in March last year.
“The UK is enjoying an unprecedented growth spurt as the economy reopens,” said Chris Williamson, chief business economist at Markit. “The output and order book growth seen in May, and record level of business optimism, are consistent with GDP rising sharply in the second quarter and for strong momentum to be sustained through the rest of the year.”
The figures add to evidence that consumers are starting to splurge savings that accumulated while the pandemic closed vast parts of the economy. With the majority of the adult population at least partially vaccinated and remaining restrictions set be removed on June 21, the Bank of England expects the biggest surge in household spending since 1988 — when Margaret Thatcher was prime minister. The biggest threat to the government’s reopening plans is the Indian variant of coronavirus, which is now spreading fast in the UK.
Higher spending last month reflected the reopening of non-essential stores on April 12. Excluding auto fuel, sales rose 9% from March and 37.7% from a year ago.
What Bloomberg Economics Says …
“The U.K. is on course for a consumer-driven boom as households make up for lost time. Pent-up demand and higher savings are set to unleash a consumer-led recovery in 2Q when we forecast the economy will expand by 5%.”
IHS Market’s flash Composite Purchasing Managers Index climbed to 62 in May, the highest since at least 1998 and slightly above the reading predicted by economists.
The reading for the dominant services sector, which has been hard hit by Covid-19, rose to 61.8, the highest since 2013, while the equivalent measure for manufacturing reached 66.1, the most since the survey began in 1992.
The report also showed the fastest increase in average cost burdens across the UK private sector since August 2008, with manufacturers flagging shortages of raw materials and high shipping costs, while service providers noted increased staff salaries.
That led to the strongest rate of inflation on record, as measured by output prices charged. Markit, like the BOE, expects price pressures to fade.
The data cap another week of good news on the economy, including a stronger-than-forecast labour market reading and a moderate increase in inflation, driven by temporary factors such as energy. The retail sales report showed:
- Food sales fell in the month for the first time since December, another month when there was a partial easing of lockdown.
- The proportion of sales online decreased to 30% from 34.7% in March.
- Clothing and footwear along with all other categories drove the increase in April.
- Sales volumes were 10.6% higher than in February 2020, before the impact of the coronavirus pandemic.
“While the figures are a step in the right direction after many months of retail closure, demand remains fragile,” said Helen Dickinson, chief executive officer of the British Retail Consortium. “Footfall is still down by 40% on the pre-pandemic period, and there are still 530 000 people who work in retail still on furlough.”
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