Coronavirus: UK economy buckles under 'deep cuts to corporate spending'

Tom BelgerFinance and policy reporter
Yahoo Finance UK
Closed shops in Cardiff as new figures lay bare the hit taken by services firms from the coronavirus lockdown. (Matthew Horwood/Getty Images)
Closed shops in Cardiff as new figures lay bare the hit taken by services firms from the coronavirus lockdown. (Matthew Horwood/Getty Images)

The UK’s dominant services sector continued to buckle under the weight of the coronavirus crisis in May.

Many firms have been hit hard by declining work and are slashing jobs rapidly amid “deep cuts to corporate spending,” according to the benchmark Markit purchasing managers’ index (PMI) survey.

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The latest PMI data for Britain’s services sector, which makes up around four-fifths of the UK economy, lays bare the heavy toll of the lockdown on UK firms.

More than half of firms in services, from IT to banking to the arts, said they continued to suffer from falling work in May with the pandemic and lockdown crippling the economy.

Companies highlighted the impact of cancelled projects, customer closures and limited sales operations with staff on furlough.

Some 13% of firms said work had increased however, benefiting from a pick-up in activity in UK construction, online sales and demand from clients in the Asia-Pacific region.

READ MORE: UK manufacturing ‘mired in deepest downturn in recent memory’

PMIs, compiled by IHS Markit and the Chartered Institute of Procurement & Supply (CIPS), are an indicator of private sector activity and given on a scale of 1 to 100. Anything above 50 signals growth, while anything below means contraction.

The services headline figure for May came in at 29, up from 13.4 in April but still marking the second fastest rate of declining activity since the survey began in 1996. The number of firms reporting falling employment was also the second highest on record.

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“Survey respondents noted that deep cuts to corporate spending had been a major factor dragging down business activity in May, leading to a lack of work to replace completed projects,” said Tim Moore, economics director at IHS Markit.

It comes after separate data earlier this week for Britain’s manufacturing data showed industry remained “mired in its deepest downturn in recent memory.” PMI data for manufacturing highlighted the continued damage to output, new orders, and employment from the crisis.

But the picture in industry May was also less bleak than the previous month, up from a record-low 32.6 in April to 40.7. It prompted IHS Markit’s Rob Dobson to say “the worst of the production downturn may be behind us.”

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