United Kingdom: The services PMI rises in July; manufacturing PMI remains in negative territory
August 5, 2019
The IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) increased from 50.2 in June to 51.4 in July. 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.
July’s rise came on a rebound in new work, with external demand buoyed by the weak sterling. However, employment growth was muted. Although input costs rose at a brisk pace, output price inflation was limp, reflecting intense competition, while business sentiment weakened amid heightened political uncertainty.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, was downbeat about the sector’s prospects: “While services activity grew in July, this marginal improvement on last month is a smokescreen. Fundamental weaknesses remain in a sector pinned down by Brexit uncertainty and increasingly stagnant global economic growth.”
The IHS Markit/CIPS manufacturing PMI was unchanged at 48.0 in July, the joint-lowest reading in over six years. Output, new orders and employment continued to fall, on the back of Brexit jitters and as firms continued to unwind the stockpiles accumulated in the run-up to the initial Brexit deadline of 29 March. Both input and output price inflation eased, while firms remained upbeat about future production despite political noise.
Regarding the evolution of manufacturing in the coming months, Rob Dobson, Director at IHS Markit, comments: “a short-lived bounce leading up to October should not be ruled out, as some manufacturers are already gearing up to re-start Brexit preparations. If so, expect a case of déjà-vu during quarter four, as another correction in inventory holdings hits growth in the lead-up to year-end.”
Author: Oliver Reynolds, Economist