Private sector growth at eight-year high as UK retail sales jump

Larry Elliott Economics editor
·4 min read
<span>Photograph: Oli Scarff/AFP/Getty Images</span>
Photograph: Oli Scarff/AFP/Getty Images

The partial reopening of Britain’s locked down economy has stimulated the fastest private sector growth in more than seven years, according to a closely watched monthly update of the economy.

A report on the state of the UK’s two biggest sectors – services and manufacturing – showed both booming in April and prompted immediate speculation of a spring spurt in activity.

Related: UK retail sales jump 5.4% as Covid-19 restrictions ease – business live

The release of the IHS/Markit purchasing managers’ index came after official data showed strong growth in retail sales in March, when most of the lockdown restrictions imposed to halt the spread of the Covid-19 pandemic were still in force.

The overall PMI rose from 56.4 in March to 60.0 in April, well above the 50 cut-off level that shows whether the economy is growing or contracting. Service sector business activity rose from 56.3 to 60.1, while manufacturing output was up from 56.6 to 59.1.

Markit’s chief business economist, Chris Williamson, said it was the strongest showing in the 23-year history of the PMI other than a four-month period between August and November 2013.

“Companies are reporting a surge in demand for both goods and services as the economy opens up from lockdowns and the encouraging vaccine rollout adds to a brighter outlook,” Williamson said.

“Business activity should continue to grow strongly in May and June as virus restrictions are eased further, setting the scene for a bumper second quarter for the economy.”

Williamson said that while exports were still being held back by tougher post-Brexit trading conditions, the strength of the survey was good news for the jobs market. “With optimism about the year ahead continuing to run close to March’s all-time high, firms have been encouraged firms to take on extra staff at a rate not seen for over three and a half years.”

The Office for National Statistics said that in March – a month in which there was only a modest relaxation of the curbs imposed across the UK to stop the spread of Covid-19 – retail sales rose by 5.4%.

The increase was well above the 1.5% predicted by City economists, with sales in March 1.6% higher than they were before the pandemic began to have an impact on the economy in February 2020.

Sales of clothes as consumers anticipated the chance to go out again were especially strong, rising by more than 17% in March. The easing of travel restrictions towards the end of the month led to an 11% increase in fuel sales.

Bread in a basket
The ONS says bakeries were among the specialist food stores that experienced increased sales in March. Photograph: Alan Wilson/Alamy

Darren Morgan, the director of economic statistics development at the ONS, said retail sales had continued their recovery after a subdued start to the year. In the first quarter of 2021, with all but essential stores closed, sales were almost 6% lower than in the final three months of 2020

“Specialist food stores, such as bakers and butchers, saw increased sales as the continued closure of hospitality saw customers buying produce for Easter festivities at home,” Morgan said.

“The approaching spring enticed people into garden centres, which had a good month, while clothing sales sprung back to life as people looked to update their wardrobe in anticipation of lockdown easing.

“Fuel sales also recorded a strong month as the easing of movement restrictions meant people could again travel further afield.”

Paul Dales, the chief UK economist at Capital Economics, said: “March’s strong rise in retail sales showed that the economy made a fair bit of progress even before non-essential retailers reopened in April.” Capital Economics said it expected the phased reopening of the domestic economy to lift gross domestic product from 7.8% below its pre-pandemic level in February to about 2-3% below in July.

The ONS said the proportion spent online decreased to 34.7% in March 2021, down from 36.2% in February 2021, but was still above the 23.1% reported in March 2020, the month when lockdown restrictions were imposed for the first time.

Kallum Pickering, an economist at Berenberg, said: “Spring has sprung for the UK economy. Led by a rapid recovery in domestic demand, the UK is building serious recovery momentum heading into the summer. Household confidence continued to rise in April, underpinned by rapid vaccine progress and easing virus restrictions, while monthly retail sales surged above their pre-pandemic level in March.”