Services sector sees lower-than-feared contraction in lockdown 2.0

Activity in Britain’s services sector slammed into reverse last month during England’s second national lockdown, but the impact was less severe than first feared, according to new figures.

The closely-watched IHS Markit/CIPS services purchasing managers’ index (PMI) showed a reading of 47.6 for November, down sharply on the 51.4 in October as non-essential shops, pubs and restaurants were forced to close their doors.

It marked the first contraction since June, with a reading below 50 signalling a decline in activity.

But the impact was not as bad as the initial 45.8 flash estimate given last month and April’s record low of 13.4 seen during the spring lockdown.

The composite PMI for the wider private sector was also revised higher, while the figures showed a surge of optimism over the outlook among firms.

The data revealed a composite reading of 49 in November against 52.1 in October, though this is almost two points higher than last month’s 47.4 flash composite estimate.

The more resilient performance in the second lockdown and recent good news on Covid-19 vaccines saw optimism across the private sector reach its highest level since March 2015.

Tim Moore, economics director at survey compiler IHS Markit, said: “New lockdown measures and tighter pandemic restrictions unsurprisingly tipped UK private sector output back into decline during November.

“However, the collateral damage on areas outside of hospitality, leisure and travel has been far more modest than in the first lockdown period.”

He added: “Hopes that the pandemic will be brought under control from an effective vaccine resulted in a sharp improvement in business optimism during November.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), warned that it could be spring before a sustained recovery is seen.

He said: “We can only hope that businesses can batten down the hatches and, with grit and determination, get through the next few months.

“It could be spring until a more sustainable recovery appears, buoyed up by vaccine hopes and when lost workforces can return again.”

Samuel Tombs, at Pantheon Macroeconomics, also said he believes the PMI does not reflect the full extent of the impact of the one-month lockdown, and is pencilling in gross domestic product (GDP) fall of around 5% in November.

“We doubt that the drop in GDP in November was as modest as the composite PMI implies,” he said.

“Many businesses that were forced to close last month during the second lockdown will have seen revenues drop to near-zero.”

He added: “Activity in the public sector also likely dropped in November, as hospitals postponed operations and schools faced rolling closures in response to confirmed cases among staff and pupils.”