United Kingdom: Services growth limp in December, manufacturers increase stocks as Brexit uncertainty rises
January 4, 2019
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) ticked up slightly from 50.4 in November to 51.2 in December, overshooting analysts’ expectations. However, the indicator was only slightly above the 50-point threshold that separates expansion from contraction. The average reading for Q4 points to paltry growth in the UK economy.
Business activity and new business growth were subdued in December. This fed through to a slowdown in employment growth, which was the weakest in nearly two and a half years. Firms continued to report hiring difficulties amid a tight labor market, while cost inflation picked up slightly, fueled by higher wage pressures. Brexit uncertainty continues to have a toxic effect on business confidence, which was the second lowest since 2009.
The IHS Markit/CIPS manufacturing PMI ticked up from a revised 53.6 in November (previously reported: 53.1) to 54.2 in December. 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. That said, the average reading for Q4 was still the slowest quarterly reading in over two years.
December’s increase came on stronger flows in new orders and new export orders. However, this extra demand was largely due to clients temporarily stocking up ahead of potential Brexit disruption. The same rationale caused manufacturing firms to sharply increase input inventories and stocks of finished goods. Input price inflation dipped, output price inflation rose, while firms’ sentiment was still largely optimistic.
According to Chris Williamson, Chief Business Economist at IHS Markit: “Combined with disappointing growth in the manufacturing and construction sectors, the meagre service sector expansion recorded in December is indicative of the economy growing by just 0.1% in the closing quarter of 2018.”
UK Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists see fixed investment growing 1.7% in 2019 and 2.1% in 2020.
Author: Oliver Reynolds, Economist