United Kingdom: Services PMI picks up in June, manufacturing PMI broadly unchanged
In June, growth in the UK services sector was the fastest since October last year, with the IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) rising to 55.1 from 54.0 in May. June’s figure overshot market expectations of 54.0, and means the indicator moved further above the 50-point threshold that separates expansion from contraction. However, the improvement could be due in part to unseasonably warm weather which appeared to boost consumer spending.
June’s uptick was driven by new orders growth which was the strongest in 13 months, amid stronger client demand, particularly for business and financial services. However, employment growth remained subdued. Firms continued to find recruitment difficulties—understandable given the tight labor market—and were anxious to protect margins which were under ongoing pressure in June due to higher wage costs and oil prices. The combination of meager payroll gains and higher new orders saw backlogs of work rise at the fastest clip in nearly three years.
According to Chris Williamson, Chief Business Economist at IHS Markit, “it remains encouraging yet also surprising that current business activity continues to show such resilience amid relatively moribund confidence regarding the year ahead outlook. The survey once again highlights how the business outlook remains clouded by widespread concerns about the impact of Brexit uncertainty in particular.”
The IHS Markit/CIPS manufacturing PMI inched up from a revised 54.3 in May (previously reported: 54.4) to 54.4 in June. 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.
June’s virtually flat reading was underpinned by faster growth in new orders—both at home and abroad—and employment, which was largely offset by more sluggish output growth. Output and new orders rose in the consumer, intermediate and investment goods industries. Input cost inflation reached a four-month high in June, partly due to shortages of certain raw materials.