UK economy enjoys an unprecedented growth spurt in May
- UK private sector recovers at the fastest rate since the 1990s
- Demand for UK goods and services surges following the UK’s lockdown exit
- Eurozone business growth hits multi-year high
- US economy experiencing a spectacular acceleration of growth
The UK economy had an “unprecedented growth spurt” in May after months of coronavirus lockdown restrictions, says Chris Williamson, IHS Markit’s chief business economist.
Data released by IHS Markit/CIPS revealed that the Flash UK Composite PMI for May surged at the fastest rate in over two decades as the economy reopened and consumers’ confidence increased.
According to IHS Markit/CIPS, the UK Composite PMI, which measures private sector growth, jumped from 60.7 in April to 62 in May.
Private sector growth was driven by renewed demand for hotels, restaurants and other consumer-facing services, which is hugely encouraging for the British economy amid the ongoing challenges of Brexit and COVID-19.
CIPS Group Director Duncan Brock said the data suggests that Britain’s economy has proven to be more resilient than seemed possible in early 2020 – when the coronavirus pandemic first hit the country.
Mr Brock added: “Had supply chains been less squeezed and the weather more seasonal for hospitality particularly, progress would have been off the scales.”
Economists believe Britain’s progressive COVID-19 vaccine rollout has also contributed to the jump in economic activity, as the growing number of vaccinated individuals boosts consumer and business confidence.
IHS Markit also revealed that Britain’s services sector, which was devastated by the coronavirus pandemic, rose to 61.8 in May from 59.2 in April – the fastest growth since 2013.
Meanwhile, manufacturing activity surged at a record pace – up from 59.2 in April to 66.1 in May.
The rise in economic activity is consistent with Q2 2021 growth projections for the UK economy, and this momentum is expected to continue throughout the year.
However, some financial market participants fear that rising inflation and price pressure could harm growth.
UK firms have also reported that costs have jumped at the fastest rate in more than a decade, while manufacturers have expressed concerns over shipping costs and raw material shortages.
While inflationary pressures should subside, IHS Markit Chief Business Economist Chris Williamson notes that it could take a while before “global business and trade return to normal as a significant uncertainty remains, especially as new virus variants appear.”
That said, there remains a great deal to be optimistic about, with separate figures from the Office for National Statistics (ONS) revealing that retail sales volumes surged by 9.2% month-on-month in April, exceeding consensus estimates.
Retail sales record robust growth in April
According to the ONS, retail sales were up by 43% on pre-pandemic levels, with department store growth 9.9% higher in April 2021 than February 2020 – the last trading month before the pandemic hit.
Non-food stores provided the most significant contribution to monthly growth, with clothing store sales up by a staggering 70% compared to non-food stores at 25.3%.
While retail footfall remains depressed, the reopening of non-essential stores saw millions across the country descend onto UK high streets for a dose of retail therapy after being banned from browsing physical racks for months.
Online sales fell in April as Britons opted to visit physical stores; however, retail e-commerce still accounts for 41% of all retail sales.
Britain isn’t the only country enjoying an acceleration of growth, as figures released by IHS Markit showed that economic activity in the Eurozone also surged in May.
Eurozone economy rebounds in May 2021
According to IHS Markit, private sector activity in the EU has shown solid growth signals, with new orders in the region surging at the fastest rate in nearly 15 years.
Eurozone’s Flash Composite PMI for May jumped up from 53.8 in April to 56.9, driven by the relaxation of COVID-19 lockdown restrictions and the pick-up in the EU’s vaccination campaign.
Although manufacturing sector growth has slowed down, the Composite PMI figure beat initial expectations and rose to its highest level in three years.
The data also revealed economic activity in the bloc’s two largest economies – Germany and France – accelerated in May, driving hopes of a solid Q2 rebound for the Eurozone.
France’s Markit Composite PMI rose well above consensus expectations of 53.7 to 57 in May. Germany also saw a welcome pick-up in demand for goods and services, with activity in the services sector jumping from 49.9 in April to 52.8 month-on-month.
However, manufacturing PMI’s for both countries came in lower-than-expected, hampered by supply issues and production problems at several factories.
In a Reuters poll of last week, economists downgraded growth expectations for the Eurozone economy, predicting an expansion of 1.4% in Q2 2021 – the lowest consensus for the bloc since October 2020.
Although an agreement made by EU leaders on reopening travel across the EU this summer has provided some cheer, especially to tourism-dependent countries such as Greece and Spain, the European Central Bank (ECB) remain cautious.
ECB President Christine Lagarde said that there is still an “overall environment of uncertainty” and that fledgeling recovery is dependent on the generous support of the central bank.
However, as the EU’s vaccination pace has picked up and member states are easing COVID restrictions, some ECB policymakers have made a case for the central bank to begin tapering stimulus policy measures.
Statements from ECB policymakers come alongside figures from Our World in Data, revealing that more than 30% of the EU’s adult population has received at least one dose of a COVID-19 vaccine.
Despite positive recovery signs, ECB President Lagarde said: “It’s far too early to terminate emergency measures, and it’s unnecessary to debate longer-term issues.”
“I have repeatedly said that policymakers needed to provide the right bridge across the pandemic, well into the recovery, so we can actually deliver on our mandate.”
Concerns have also been raised about spiralling inflation, as recent data has shown that the prices of consumer goods have risen at unprecedented rates.
Although inflation remains below the ECB’s target rate, “input shortages and renewed demand for goods and services have created the perfect environment for surging pipeline inflation,” said Bert Colijn at ING.
Investors are particularly concerned about US inflation, which came in far higher than expectations for April due to a robust pick-up in economic activity in the country.
Flash US PMI reaches new series of growth in May
The Flash US PMI Composite reading surged to a record high of 68.1 in May from 63.5 in April, suggesting that the US economy could be heading towards a spectacular acceleration of growth in 2021.
The surge in growth was primarily driven by a pick-up in manufacturing activity, which gained momentum in the context of a sharp rise in domestic demands, triggered by the reopening of the US economy.
According to IHS Markit, the manufacturing sector activity rose to 61.5 in May from 60.5 in April, and most economists were expecting the reading to be unchanged.
The US Service Sector also recorded strong growth in May, jumping to 70.1 from 64.7 the previous month.
Although new COVID variants remain a global concern and threat, the reopening of the US economy, which has been made possible due to the country’s rapid vaccine rollout, has boosted business and consumer confidence.
Separate data showing a persistent decline in the number of weekly jobless claims also supports the outlook for the US labour market and the broader economy, bolstering hopes of an earlier-than-anticipated economic recovery.
However, the data could fuel inflation concerns further, especially if prices continue to climb as higher prices could force the Federal Reserve (Fed) to take action.
US manufacturers have already reported shortages in raw materials and a strain on capacity. To reduce production costs for themselves, manufacturers pass on cost burdens to clients, which is expected to continue throughout the year.