United Kingdom: Services and manufacturing PMIs rise in May, pointing to pick-up in economic growth following Q1's lull
June 5, 2018
Growth in the UK services sector picked up to a three-month high in May, with the IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) rising from 52.8 in April to 54.0. May’s figure overshot market expectations of 53.0, and means the indicator moved further above the 50-point threshold that separates expansion from contraction.
Despite the uptick, in May new orders grew at only a mild pace, with firms pointing to Brexit uncertainty holding back decision-making. In addition, employment growth was subdued, and businesses reported hiring difficulties; this comes amid a tight labor market, with the unemployment rate currently at a multi-decade low. Problems recruiting suitably-skilled staff generated greater wage pressures, which coupled with higher fuel bills saw input costs rise at a rapid pace. Discouragingly, business confidence waned in May, due to concerns over Brexit and consumer demand.
Despite May’s improvement, Chris Williamson, Chief Business Economist at IHS Markit, cautioned that it may not last: “disappointing inflows of new work suggest that growth could wane in coming months as Brexit-related uncertainty continues to weigh on spending decisions and dampen business confidence. Measured across all major parts of the economy, new orders growth in the second quarter so far is running at the weakest since the third quarter of 2016.”
The IHS Markit/CIPS manufacturing PMI increased from an over one-year low of 53.9 in April to 54.4 in May. As a result, the index moved further above the 50-point threshold that separates expansion from contraction in activity in the manufacturing sector, where it has been since August 2016.
May’s rise was driven by faster growth in output. On the other hand, growth in new orders and employment eased, with the expansion in new orders dipping to the slowest in 11 months on a softer domestic market. Input price inflation rose in May on higher raw material prices and shortages, leading to an increase in output prices. Despite worsening sentiment, UK manufacturers were generally positive about production forecasts over the coming year.
Author: Oliver Reynolds, Economist