United Kingdom: Services and manufacturing PMIs stay gloomy in September as Brexit uncertainty bites
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) decreased to 49.5 in September from 50.6 in August. As a result, the indicator moved below the 50-threshold that separates expansion from contraction in the services sector. That said, it should be noted that the services PMI does not cover certain subsectors such as retail, education and health, meaning the PMI does not completely reflect the sector.
September’s decline came on lower new orders, new exports and employment, with no-deal Brexit fears blamed for the fall in international demand. While input price inflation was sharp, spurred by higher wages and fuel costs, and the weak sterling, output price inflation was soft due to intense competition.
The IHS Markit/CIPS manufacturing PMI ticked up to 48.3 in September from August’s multi-year low of 47.4, but remained below the 50-threshold, indicating a contraction in the sector. Output, new orders, new exports and employment declined further, while business sentiment was muted and cost inflation was mild. A resumption of stockpiling was a sign of firms restarting no-deal Brexit preparations.
Chris Williamson, Chief Business Economist at IHS Markit, commented on the potential implications for monetary policy: “Brexit-related concerns dominated the September survey responses, linked by companies to falling sales, cancelled and postponed projects, a lack of investment and job losses. […] The increasingly dire readings push the surveys further into territory that would normally be associated with policy stimulus from the Bank of England, suggesting a greater likelihood that the next move in interest rates will be a cut.”