United Kingdom: Service sector stagnates in January; manufacturing firms continue stockpiling
February 5, 2019
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) declined from 51.2 in December to 50.1 in January, an over two-year low. As a result, the indicator now hovers close to the 50-point threshold that separates expansion from contraction.
New orders declined in January, while employment fell for the first time in over six years and business sentiment remained depressed, with these negative developments linked to pervasive Brexit uncertainty. On the price front, input price inflation was driven by higher wages and unfavorable exchange rate developments, although output price inflation was mild due to competition among service providers.
The IHS Markit/CIPS manufacturing PMI ticked down from 54.2 in December to 52.8 in January. However, the index was still above the 50-point threshold that separates expansion from contraction in activity in the manufacturing sector, where it has been since August 2016.
January’s decrease came on slower growth in output, new orders and new exports, and a contraction in employment. Moreover, new orders growth was flattered by a record increase in inventories in preparation for a no-deal Brexit, suggesting the underlying trend was even weaker. Input and output price inflation eased in January, while business sentiment dipped to an over two-year low, amid Brexit uncertainty and weak dynamics in the Eurozone.
According to James Knightley, Chief International Economist at ING: “It is clear that business is worried and with the Brexit uncertainty set to continue, the risk is that activity softens further - firms will become increasingly risk averse and implement contingency Brexit planning”. […] the case for a Bank of England rate hike this year continues to recede.”
Author: Oliver Reynolds, Economist