LONDON (Reuters) - Britain’s private sector shrank less than expected this month as more businesses restarted work after the COVID-19 lockdown, putting the economy on course to return to growth from next month, a survey showed on Tuesday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index (PMI), which measures activity in the services sector and manufacturing, jumped to 47.6 in June from 30.0 in May.
This was a record rise that easily exceeded expectations in a Reuters poll for an increase to 41, though its sub-50 level still represents a modest fall in output.
“June’s PMI data add to signs that the economy looks likely to return to growth in the third quarter, especially given the further planned easing of the lockdown from 4th July,” IHS Markit economist Chris Williamson said.
Prime Minister Boris Johnson is expected to announce a reduction in social distancing rules to one metre from two later on Tuesday, and set out how pubs and restaurants can follow in the path of shops and reopen to the public.
Last week the BoE said Britain’s economy looked on course to have shrunk by around 20% since the coronavirus hit the economy in March — a smaller decline than it had first feared, but still one of the biggest annual drops in 300 years.
“Longer-term recovery prospects remain highly uncertain,” Williamson said. “Uncertainty over recovery prospects and job prospects also mean demand for many goods, especially non-essential big-ticket items, is likely to remain weak for many months, with Brexit uncertainty also continuing to cast a shadow over the economy.”
IHS Markit expects output in 2020 to be 12% below its level in 2019, before expanding by just 5% in 2021 — a far weaker recovery than the rebound pencilled in by the BoE for next year.
The survey showed faster-than-expected recoveries in June in both manufacturing and the harder-hit services sector.
The manufacturing PMI rose to 50.1 from 40.7 — just edging out of recessionary territory — while the services PMI, which does not include retailers, improved to 47.0 from May’s 29.0.
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Reporting by David Milliken; Editing by Catherine Evans