United Kingdom: Services and manufacturing PMIs pick up in July
August 1, 2017
The IHS Markit/CIPS UK services PMI rose from 53.4 in June to 53.8 in July. As a result, the indicator remains solidly above the 50-point threshold that separates expansion from contraction in the service sector for the twelfth consecutive month.
July’s increase was largely driven by slightly faster growth in new work, although the growth rate was subdued compared to earlier in the year. New work was in some cases linked to new product launches and successful promotional initiatives. However, there were also reports that post-election uncertainty and concerns regarding the economic outlook were dampening activity. As a result of the continuing expansion, firms hired more staff in July, with recruitment reaching the strongest pace since early 2016; this consequently led to a stabilization in backlogs of work. Input price inflation remained elevated, albeit softer than February’s multi-year peak.
However, Chris Williamson, Chief Business Economist at IHS Markit, struck a cautious tone: “Hopes of a stronger performance in the latter half of the year are ebbing away, with business confidence close to its lowest since 2012. July’s data has presented a worryingly mixed bag of results reaffirming the impact economic uncertainty and the weak pound can have.”
In line with the progress observed in the service sector, the manufacturing IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose from a revised 54.2 in June (previously reported: 54.3), to 55.1 in July, signifying an acceleration in growth in the manufacturing sector. As a result, the index remains comfortably above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been since August last year.
July’s figure was underpinned by a near-survey record growth in new export orders. Most major export markets, including Europe, North America and the Asia-Pacific region, contributed to the performance, as firms likely reaped the rewards of a depreciated sterling. Inflows of new work were also stronger than in the prior month, which encouraged firms to take on more staff; the pace of job creation in July was among the briskest in the last three years. Mercifully, cost pressures eased in July, with input prices rising at the slowest pace in over a year, as the impact of the weaker currency appeared to lessen.
Commenting on price developments, Rob Dobson, Senior Economist at IHS Markit, said, “If this trend of milder price pressures is also reflected in other areas of the UK economy, this should provide the Bank of England sufficient lee-way to maintain its current supportive stance until the medium-term outlook for economic growth becomes less uncertain.”
Author: Oliver Reynolds, Economist