United Kingdom: The manufacturing and services PMIs sink in June, rounding off a tepid quarter
July 3, 2019
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) fell from 51.0 in May to 50.2 in June. As a result, the indicator was only marginally above the 50-point threshold that separates expansion from contraction in the services sector. It should be noted that the services PMI does not cover certain subsectors such as retail, education and health, meaning the PMI may not completely reflect the sector.
June’s drop came amid weak client demand and falling backlogs of work. However, employment growth picked up despite the soft panorama. Firms were optimistic about growth prospects, despite pervasive political uncertainty. Although input costs rose at a brisk pace, output price inflation was limp, reflecting intense competition.
The IHS Markit/CIPS manufacturing PMI fell from 49.4 in May to 48.0 in June, the lowest reading in over six years. The fall can be partly attributed to companies unwinding the huge stockpiles accumulated in the run-up to the initial Brexit deadline of 29 March, which led to lower output and new orders. The uncertain political panorama and ebbing global economic momentum likely also played a role. Other indicators compounded the gloomy picture of the sector; new export orders and employment declined in June, while business sentiment was among the lowest in the series’ history.
According to Chris Williamson, Chief Business Economist at IHS Markit: "The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the heels of steep declines in both manufacturing and construction. […] The worsening picture will put further pressure on the Bank of England to add stimulus”.
Author: Oliver Reynolds, Economist