In Focus Commercial Credit
UK private sector recovery ahead of global trend
Companies are starting to emerge from lockdown and to begin to drive the economy again
Jeavon Lolay Head of economics and market insight, Lloyds Bank Commercial Banking
UK businesses outperformed their international counterparts on a series of metrics tracking recovery from Covid-19 during July, according to our Recovery Tracker. From a global perspective, PMI data
shows a general shift upwards as lockdown measures were eased across most markets. The World PMI rose to 50.8 in July from 47.8 in June with increased output across manufacturing and service sectors. The debut edition of the monthly Tracker
showed that UK businesses’ output increased faster than the global benchmark in 12 of the 14 sectors monitored by the Tracker, indicating UK businesses recovered faster than similar firms in other parts of the world in July. A Tracker reading of above 50 signals
output is rising, while a reading below 50 indicates output is falling. The July PMI builds on gradual gains
from an exceptionally low point for most countries, the majority now above the key 50 level, with the UK Composite Index reaching 57, comparing favourably with the Euro Area 54.9 and the USA at 50.3.
Although output is now rising in the
UK, the outlook is still very uncertain with the risk of future widespread Covid-19 outbreaks, and the figures should be viewed in the context of the historic lows recorded during the second quarter of 2020. All 14 sectors underperformed the global
benchmark in April. UK Metals and Mining (75), Software
Services (59), Beverages and Food (63) and Chemicals (66) were furthest ahead of global recovery trends in July. A restart of domestic manufacturing
supply chains and a tentative rebound in corporate spending were the main factors driving this outperformance. The two domestic sectors to fall behind
the global recovery curve were Tourism and Recreation (45) and Technology Equipment (39). Tourism and Recreation Businesses were
challenged by a drop in international travel and restrictions on in-person interaction. Businesses in the sector were also some of the last to reopen following the easing of lockdown measures in the UK. Meanwhile, Technology Equipment
manufacturing is struggling globally, in part reflecting trade tensions between the US and China.
The July PMI builds on gradual gains from an exceptionally low point for most countries, the majority now above the key 50 level, with the UK Composite Index reaching 57, comparing favourably with the Euro Area 54.9 and the USA at 50.3
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UK output rising steadily The proportion of UK firms reporting lower output and attributing this to Covid-19 has fallen every month since the height of lockdown early in the second quarter. In total, 80% of construction firms, 69% of
services business and 67% of manufacturers cited lower output caused by the pandemic during April, but by July the number of survey respondents reporting a decline in
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Tourism and Recreation Businesses were challenged by a drop in international travel and restrictions on in-person interaction. Businesses in the sector were also some of the last to reopen following the easing of lockdown measures in the UK. Technology Equipment manufacturing is struggling globally, in part reflecting trade tensions between the US and China
output due to Covid-19 had fallen to 24%, 28% and 15% respectively. In July, 12 of the 14 sectors monitored by
the Tracker reported rising output compared to June. By comparison, at the height of lockdown in April, every UK industry reported that its output was falling. At that point, Healthcare fared best (39)
while Tourism and Recreation output collapsed (2), reflecting the varied sector- by-sector impact of the pandemic. The manufacturing industry
underpinned the overall increase in UK output during July. Of the manufacturing sub-sectors we
analysed, those operating in metals and mining reported the greatest rise in output during the month – with a reading of 75 – due to increased demand for manufacturing materials and sales to reopened automotive plants.
September 2020
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