United Kingdom: Services and manufacturing PMIs point to continued expansion in September
October 5, 2017
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) picked up from 53.2 in August to 53.6 in September. As a result, the indicator remained solidly above the 50-point threshold that separates expansion from contraction in the services sector for the 14th consecutive month.
September’s figure was driven by continued growth in output and new orders, although the latter dropped to a 13-month low. Firms cited a strong labor market and resilient consumer spending as supporting factors, although future expectations grew more pessimistic. This was understandable given the ever-more pervasive uncertainty generated by Brexit, with reports of firms delaying decisions on large projects. Despite this uncertainty, employment growth was solid and only marginally below last month’s 19-month high. Input cost inflation remained elevated, with higher prices for food, energy and fuel bills.
According to Chris Williamson, Chief Business Economist at IHS Markit: “The services sector saw another month of modest growth, running in the middle ground between the robust expansion seen in manufacturing and the contraction recorded in construction. The three PMI surveys put the economy on course for another subdued 0.3% expansion in the third quarter, but the fourth quarter could see even slower growth.”
In contrast to the evolution of the services sector, the IHS Markit/CIPS manufacturing PMI dipped from a revised 56.7 in August (previously reported: 56.9) to 55.9 in September, signifying further growth in the manufacturing sector. As a result, the index still remained well above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been since August last year.
September’s figure was underpinned by growth in output and new orders. New export orders were particularly buoyant, with greater sales to Europe, the U.S., China and Brazil, still aided in some instances by the tailwind of weaker sterling. In response to robust economic activity, firms took on more staff in September. In line with developments in the services sector, input cost inflation increased on the back of higher commodity prices and supply chain constraints.
Despite the current positive developments, Rob Dobson, Director at IHS Markit, wasn’t completely sanguine: “Although it looks as if the sector made solid progress through the third quarter as a whole, the growth slowdown in September is a further sign that momentum is being lost across the broader UK economy. Exports remain a bright spot, however, still rising at one of the strongest rates over the past six-and-a-half years.”
Author: Oliver Reynolds, Economist