Economy poised for strong bounce back

Construction and services making healthy recovery

BRITAIN’S economy is on track for a strong bounce back after lockdown ends, closely-watched indicators are expected to say this week.

The Markit/cips purchasing managers indices for the services and construction sectors are tipped to show that both gained momentum in March. Services is forecast to come in at 56.8, compared to 49.5 in February, while construction is likely to rise from 53.3 to 54.6.

Last week the PMI score for the manufacturing sector came in ahead of City expectations at 58.9, the sector’s strongest reading for a decade. A score above 50 indicates growth, a score below points to contraction.

First-quarter gross domestic product is forecast to shrink by 1 per cent due to lockdown. However, with the services, manufacturing and construction sectors showing strong signs of improvement, experts believe the economy will rebound strongly in the second and third quarters.

“The PMIS are indicating that the economy has been resilient and is recovering. January was not great, but it was better than expected and there is a steady recovery trend. It is looking good for a recovery in the second quarter,” Investec chief economist Philip Shaw said.

“It looks like a jagged V-shaped recovery. You have a lot of momentum behind the global economy, you have £120billion in excess household savings to spend, it looks like we’re in for a sharp rebound in GDP in the second and third quarters.”

ING developed markets economist James Smith said: “If we assume the next couple of reopening stages stay on track, we should see a decent second-quarter bounce, in the region of 4-5 per cent.”

CMC Markets chief market analyst Michael Hewson said: “As the UK economy heads towards an unlock, we’ve seen evidence that businesses are gearing up for this economic reopening in the flash numbers we saw at the end of last month.

“This rebound suggests businesses are building up inventory and preparing for a coiled-spring rebound in the second quarter.”

Britons have saved unprecedented sums in lockdown. Official figures show the household savings rate, the ratio of savings to disposable income, is 16.1 per cent. It was 7.7 per cent pre-pandemic.

Capital Economics senior UK economist Ruth Gregory said the bounce back could be stronger if people spend some of the money they have saved: “We’ve assumed households will go back to saving the same share as they did before.that is enough to drive a rapid economic recovery.the upside risk is if households spend some of their stock of savings.”