United Kingdom: The services sector gains strength in August, while the manufacturing sector softens
September 5, 2018
In August, growth in the UK services sector picked up, with the IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) rising to 54.3 from 53.5 in July. August’s figure remained above the 50-point threshold that separates expansion from contraction, and overshot market analysts’ expectations.
The increase in August was driven by faster growth in business activity and new work. This in turn led to the fastest expansion in employment in six months. However, firms reported difficulties finding suitably skilled workers, which should come as little surprise given that the unemployment rate is currently at a multi-decade low. Input cost inflation rose, due to higher fuel prices and wage pressures, while business optimism softened as Brexit uncertainty continued to weigh heavily.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “though the sector remained in positive territory, the dark clouds of political indecision are still having an effect and preventing more business activity. Service providers are likely to continue along this vein for the rest of the year until those clouds have cleared”.
The IHS Markit/CIPS manufacturing PMI fell from a revised 53.8 in July (previously reported: 54.0) to 52.8 in August, marking an over two-year low. Despite this, the index remained above the 50-point threshold that separates expansion from contraction in activity in the manufacturing sector, where it has been since August 2016.
August 2018’s reading was due to more sluggish increases in output, new orders and employment, with employment growth in particular almost petering out altogether. The slowdown in new orders growth was largely driven by a contraction in new export orders, despite the weak sterling. Firms’ sentiment regarding future conditions dipped to a 22-month low but remained largely positive. Price pressures were elevated in August, partly on higher metal, energy and electronics prices.
Author: Oliver Reynolds, Economist