Businesses may be getting more optimistic, but the UK is still heading for a long recession

It seems the slight increase in optimism is more likely a reflection that dread and uncertainty about just how badly businesses could be impacted by coronavirus has been replaced by resignation, writes Ben Chapman

Some companies have gone back to work, but reasons for optimism are few and far between right now (Getty)

Finally some good news. A survey has pointed to a better-than-expected performance ahead for the UK economy.

In normal times, market-watchers keep a close eye on the purchasing managers’ index (PMI) because it gives a fairly good indication of what is in store.

It gives an early sign of firms’ plans and how confident they are, and the services sector makes up more than three-quarters of the UK economy.

So it was positive to see that the reading jumped from 13.8 in April to 28.9 in May. So, are these the first green shoots of recovery? A post-lockdown bounce? Unfortunately not.

First of all, it’s important to note that any figure below 50 means the economy is shrinking and at 28.9, it is shrinking a faster pace than in the financial crisis when the PMI bottomed out at 38.1.

But there are some tangible improvements to point to. Part of the increase in optimism is likely related to additional government measures taken to support businesses.

Most notably, bounceback loans have been made available of up to £50,000 per company, a scheme so popular that more than £14bn has gone out of the door in a matter of days.

That has given much-needed breathing space to tens of thousands of small firms who were on the brink of collapse and had no chance of getting funding through the government’s hopeless Coronavirus Business Interruption Loan Scheme (CBILS). A loan scheme for larger companies has also been broadened and improved. The furlough scheme has gone live and been a clear success, covering the wages of 8 million people.

Looking longer-term, the government has also eased lockdown restrictions, which will undoubtedly help some companies. However, there are credible fears that we have relaxed conditions too early, case numbers remain too high and another spike could be on the way. That outcome that would inevitably result in another shutdown and deeper economic pain.

It seems the slight increase in optimism (or reduction in pessimism) is more likely a reflection that dread and uncertainty about just how badly businesses could be impacted by coronavirus has been replaced by resignation.

There has been a growing acceptance over the past couple of weeks that a quick, V-shaped recovery, of the kind forecast by the Bank of England recently, is not very likely. The chancellor conceded as much this week.

Chris Williamson, economist at IHS Markit, which conducts the PMI survey, summed it up: "The UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer Covid-19 cases."

He added: "Travel and tourism firms, hotels, restaurants and producers of consumer goods such as clothing were again the hardest hit, reflecting virus containment measures, but this remains a shockingly broad-based downturn with very few companies left unscathed by the Covid-19 pandemic."