United Kingdom: Services PMI dips in August, while manufacturing PMI powers ahead
September 14, 2017
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) fell from 53.8 in July to 53.2 in August, marking the lowest reading since September 2016. However, the indicator remains solidly above the 50-point threshold that separates expansion from contraction in the service sector for the thirteenth consecutive month.
August’s dip was driven by slower growth in output and new orders, with the latter expanding at a notably more sluggish pace than in the early part of 2017. Firms cited muted demand and elevated uncertainty as factors behind the slowdown. Despite more sluggish growth in economic activity, backlogs of work rose at the fastest rate in over two years. This had a positive knock-on effect on employment in the service sector, as firms stepped up hiring efforts to address capacity constraints. Input price inflation was the fastest in six months, and output prices consequently rose as a result.
According to Chris Williamson, Chief Business Economist at IHS Markit: “In services, the weaker growth trend was most evident in consumer–facing sectors such as hotels & restaurants and other personal services, which includes businesses such as cinemas, gyms and hairdressers.” This is likely a result of higher inflation hitting consumers’ purchasing power, as reflected by sluggish growth in private consumption so far this year.
In contrast to the evolution of the services sector, the manufacturing IHS Markit/CIPS PMI rose from a revised 55.3 in July (previously reported: 55.1) to 56.9 in August, signifying an acceleration in growth in the manufacturing sector. As a result, the index remains well above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been since August last year.
August’s figure was underpinned by a broad-based expansion in all product categories. Growth in output and new orders accelerated in August, largely thanks to a robust domestic market. However, growth in new export orders was also solid, with firms buoyed by the weak pound. Job creation continued for the thirteenth straight month in August on the back of robust economic activity, while input price inflation rose for the first time in seven months.
Despite the current positive developments, Rob Dobson, Director at IHS Markit, pointed out possible clouds on the horizon, “There are increasing signs of supply-side issues leading to raw material and staff shortages, which could become a constraint on output growth going forward, while also leading to higher costs.”
Author: Oliver Reynolds, Economist