Economy edges back to growth but recovery ‘lacked vigour’, report shows

The UK economy returned to marginal growth this month after the second lockdown ended, but ports disruption hit factories while hospitality firms remain under severe pressure, new figures show.

The closely-followed IHS Markit/CIPS Flash UK Composite purchasing managers index (PMI) data shows a reading of 50.7 so far this month, up from the 49 final result for November.

Anything above 50 is seen as an increase in activity.

The survey adds to signs that the economic impact of the second wave of Covid-19 will be less extreme than the first; however, IHS said the economic recovery “lacked vigour”.

Manufacturing firms helped push private sector activity higher as they enjoyed solid growth thanks to stockpiling ahead of the year-end Brexit deadline, with a reading of 55.3.

But the hard-hit services sector continued to hold back the recovery, registering a 49.9 reading.

The report also indicated severe pressure on manufacturing supply chains, overwhelmingly linked to freight delays following congestion at UK ports.

Around 45% of the survey panel reported longer wait times from suppliers, while only 2% saw an improvement.

A spike in imports due to the Covid-19 pandemic and fears of a no-deal Brexit have led to bottlenecks at UK ports in recent weeks.

Retailer Dixons Carphone on Wednesday became the latest firm to reveal it has seen delays to goods at ports, of up to two days, which comes at a critical time of year for many firms.

Chris Williamson, chief business economist at survey compiler IHS Markit, said: “The UK economy returned to growth in December after the lockdown-driven downturn seen in November, adding to signs that the hit to the economy from the second wave of virus infections has so far been far less harsh than the first wave in the spring.

“The recovery lacked vigour, however, as the service sector remained under particular strain, contracting marginally again as ongoing social distancing measures due to tiered lockdowns continued to hit many parts of the economy.”

Duncan Brock, group director at CIPS, warned that the serious supply chain woes seen by manufacturing and services firms “could impede further progress and pull the sectors into recession again”.

“Though manufacturing was buoyed up by Brexit panic-buying and saw the fastest rise in purchasing since August 2013, delivery times increased at the third highest rate since 1992 which meant many essential materials were not getting through,” he said.

The PMI also showed a glimmer of hope for jobs as employment numbers stabilised after recent steep cuts, with the rate of job shedding across the UK private sector the slowest for 10 months in December.

Optimism among firms for the year ahead likewise remained robust, dipping only slightly since November thanks to hopes of a coronavirus vaccine boost for 2021.

The data came ahead of the Bank of England’s interest rate decision on Thursday, when policymakers are expected to keep rates unchanged at 0.1% as the economy shows resilience in the face of the second wave.

But economists said the Bank will be watching the Brexit talks intently and could launch emergency action before its next meeting in February if a deal is not reached.