United Kingdom: Services PMI dips in November, while manufacturing PMI powers ahead
December 18, 2017
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) dipped from 55.6 in October to 53.8 in November. However, the indicator remained comfortably above the 50-point threshold that separates expansion from contraction in the services sector, where it has now been for 16 consecutive months.
November’s figure was driven by slower growth in output and new orders. As a result, the pace of hiring declined, and was the joint-slowest since March. Although business confidence improved slightly compared to the prior month, it was muted overall, likely driven by elevated political uncertainty and high inflation. On the price front, input cost inflation accelerated in November. This led firms to pass on these higher prices to consumers in an attempt to protect margins, with output prices increasing at the fastest pace since 2008 as a result. On the evolution of prices, Chris Williamson, Chief Business Economist at IHS Markit, commented:
“Rising oil prices were again to blame in November, with firms also reporting the need to pass higher costs of a wide variety of other inputs on to customers as a result of the weak pound having driven up import prices. As such, the survey data suggest that inflationary pressures have yet to peak.”
In contrast to the evolution of the services sector, the IHS Markit/CIPS manufacturing PMI increased from a revised 56.6 in October (previously reported: 56.3) to 58.2 in November, the highest reading in over four years. 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.
November’s figure was underpinned by faster growth in output and new orders. Both the domestic and external markets helped generate new business, with some companies reporting higher sales to clients from Europe, the Americas, Asia and the Middle East. Growth was broad-based, and was observed in the consumer, intermediate and investment goods categories. Due to increasing backlogs of work and strong demand, employment growth accelerated to a multi-year high in November. On the price front, both input and output price growth remained elevated in November.
According to Rob Dobson, Director at IHS Markit:
“Of real note was a surge in demand for UK investment goods, such as plant and machinery, with new orders for these products rising to the greatest extent in over two decades. This suggests that capital spending, especially in the domestic market, is showing signs of renewed vigour.”
Author: Oliver Reynolds, Economist