United Kingdom: Services PMI tumbles into contractionary territory in March; manufacturing firms continue stockpiling
April 3, 2019
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) fell from 51.3 in February to 48.9 in March, marking a multi-year low. As a result, the indicator moved below the 50-point threshold that separates expansion from contraction for the first time since the aftermath of the Brexit referendum in June 2016.
March’s decline came amid a third consecutive monthly drop in new work and a sharp fall in exports. In contrast, employment recovered somewhat. Input price inflation was moderate and unchanged from February, which fed through to only a mild increase in output prices.
The IHS Markit/CIPS manufacturing PMI rose from a revised 52.1 in February (previously reported: 52.0) to 55.1 in March, an over one-year high. 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.
March’s increase was underpinned by manufacturing firms stockpiling in preparation for a possible no-deal Brexit. This saw record rises in stocks of inputs and finished goods, which fed through to stronger output and employment. Both input and output prices rose in March, on the back of higher energy prices and shortages of raw materials.
According to Chris Williamson, Chief Business Economist at IHS Markit: “A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months. Both the services and construction sectors are now in decline and manufacturing is only expanding because of emergency stockpiling ahead of Brexit.”
Author: Oliver Reynolds, Economist