United Kingdom: Services PMI ticks up marginally in February; manufacturing sector weakens
March 5, 2019
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) rose from January’s two-and-a-half-year low of 50.1 to 51.3 in February. As a result, the indicator moved further above the 50-point threshold that separates expansion from contraction.
Despite the slight uptick in the overall index, conditions in the service sector are soft, with Brexit uncertainty cited by firms as the key factor holding back performance. New orders declined—albeit at a lesser pace than in January—while employment fell at the fastest pace since 2011. In contrast, input price pressures eased, which coupled with intense competition and discounting led to a slower rise in output prices.
The IHS Markit/CIPS manufacturing PMI ticked down from a revised 52.6 in January (previously reported: 52.8) to 52.0 in February. However, the index was still above the 50-point threshold that separates expansion from contraction in activity in the manufacturing sector, where it has been since August 2016.
February’s decrease came on the back of a near-stagnation in new order growth, in turn linked to more sluggish domestic activity and weak momentum in Europe. As in the service sector, employment in the manufacturing sector shrank at a multi-year high pace in February, while business optimism fell to a survey-record low. Manufacturing firms continued to implement contingency plans ahead of a possible no-deal Brexit, and increased stocks of inputs and finished goods. While such stockpiling has flattered the manufacturing PMI in recent months, when this effect eventually unwinds the headline reading will be dampened as a result.
PMI surveys for January and February suggest the economy grew at only a marginal pace in Q1, weighed down by Brexit uncertainty. As Chris Williamson, Chief Business Economist at IHS Markit, says: “The latest PMI surveys indicate that the UK economy remained close to stagnation in February, despite a flurry of activity in many sectors ahead of the UK’s scheduled departure from the EU.”
Author: Oliver Reynolds, Economist