United Kingdom: The services sector softens slightly in September while the manufacturing sector picks up
October 3, 2018
In September, growth in the UK services sector lost some steam, with the IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) dipping to 53.9 from 54.3 in August. September’s figure remained above the 50-point threshold that separates expansion from contraction.
The dip in September was driven by slightly slower growth in new orders and business activity, although employment growth picked up to a seven-month high. Firms reported difficulties finding suitably skilled workers, which fed wage pressures. Coupled with higher fuel prices, this increased firms’ cost burdens. While business sentiment improved slightly in September, it was muted by historical standards. The overall picture shows a service sector growing at a healthy pace, but with activity dampened by Brexit uncertainty delaying client decision making.
The IHS Markit/CIPS manufacturing PMI increased from a revised 53.0 in August (previously reported: 52.8) to 53.8 in September. 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.
September’s improvement was due to faster growth in output and new orders, and a rebound in new export orders. As a result, firms increased staff numbers, although large firms shed workers for the second consecutive month. Both input and output cost inflation picked up in September, with cost pressures influenced by exchange rate movements and supply shortages. Firms grew more optimistic, with the majority expecting to raise output over the next 12 months. Looking at a broader perspective, the data shows that the manufacturing sector is expanding at only a moderate rate and has lost notable momentum since the turn of the year. As with the service sector, Brexit uncertainty appears to be dampening activity.
UK Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists see fixed investment growing 1.2% in 2018 and 2.0% in 2019.
Author: Oliver Reynolds, Economist