United Kingdom: The services PMI improves in May while the manufacturing PMI slumps
June 5, 2019
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) rose to 51.0 in May from 50.4 in April. As a result, the indicator moved further 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.
New orders received by service businesses increased in May for the first time in five months, helping push up the headline reading. That said, the increase was only marginal and businesses reported that Brexit-related uncertainty weighed on demand conditions. In addition, employment levels rebounded in May, which helped reduce the backlogs of work in the month. In terms of prices, higher staff wages and transport costs contributed to higher input costs in May. Some businesses also reported that a weaker sterling raised costs. Nevertheless, cost inflation dropped to a 12-month low. Output charges, meanwhile, rose at the fastest pace so far in 2019. On the outlook, businesses became the most optimistic in eight months in May, despite domestic political uncertainty.
The IHS Markit/CIPS manufacturing PMI declined to 49.1 in May from 53.1 in April. As a result, the index fell below the 50-point threshold that separates contraction from expansion in activity in the manufacturing sector for the first time since July 2016. The sharp deterioration in May was primarily due to lower export orders, which fell at the quickest pace in four-and-a-half years. Manufacturers reported lower demand from Asia and Europe; goods producers remained concerned about Brexit and diverted supply chains away from the UK, leading to the lower demand from Europe. Lower export demand hit both output and employment, with only a modest expansion in the former and a fall for the second consecutive month in the latter. In terms of inventories, stocks of finished goods increased at a sharply slower rate in May, while pre-production inventories dropped for the first time in 10 months. In terms of prices, input cost inflation slowed, while output charge inflation accelerated. On the outlook, businesses remained optimistic in May, despite the downturn.
Author: Edward Gardner, Economist