Markit/CIP’s purchase manager index data for the month of June showed a broad based decline in the pace of activity. Markit’s data suggested that business activity in the UK increased at the weakest pace in four months during the month of June.
The Markit/CIP’s all sector PMI index fell to 53.9 in June, compared to 54.5 in May and marked a second monthly decline in the index. Output across the manufacturing, construction, and services sector was consistent with the data.
The services PMI released last week showed a headline reading of 53.4 in June which 0.4 points lower from 54.8 that was registered in May. Growth in the services sector was seen slowing for the second consecutive month. The decline in the acceleration was attributed to weaker consumer spending.
Markit’s data showed that in the services sector, hotels and restaurants alongside other consumer-facing businesses witnessed a decline. On the other hand, business services including finance and IT continued showing robust growth, sending mixed signals.
Construction activity as measured by Markit’s construction PMI was also lower. Falling sharply from 56.0 in May, construction activity index fell to 54.8 in June. This was a decline after construction activity hit a 17-month high.
The manufacturing activity fell to a three-month low to 54.3 in June and down from 56.3 that was registered in May. Despite the decline, manufacturing activity in the UK remains in an expansionary mode for the past eleven consecutive months.
Rob Dobson, an economist at IHS Markit, said that the UK’s manufacturing sector had weathered the uncertainty of the general elections that were held in June, which brought more uncertainty to the markets on top of the Brexit negotiations.
Manufacturing activity showed a broad based decline in output including consumer, investment, and intermediary goods.
Inflows of new orders across three sectors were also seen slowing and saw the smallest increase in over nine-months.
UK business and consumer outlook remains mixed
Despite the decline, the surveys signaled that the second quarter performance might not be as bad as initially thought. Given that the PMI’s posted a strong increase in activity in April, the all-sector PMI’s hinted that the UK’s gross domestic product or GDP was around 0.45% on the quarter on average.
Markit, UK PMI and GDP comparison (June 2017). Source: Markit
The PMI’s also signaled that hiring was robust with businesses seen adding new jobs which were also running at the highest rate in nearly one and a half years. This was seen to be consistent with the view that companies continued to remain in an expansionary mode.
On the flipside, there is evidence building up that there could be further risks to UK businesses in the coming months. Business confidence over a 12-month outlook was seen to have weakened significantly. Businesses reported that the outlook could deteriorate further given the ongoing uncertainty in the UK as it would make negotiations difficult with the UK government and the EU.
The PMI’s also showed that inflation could remain mixed. While input cost inflation rose, it was still below the levels seen earlier in the year. Input cost in the manufacturing sector was seen to have weakened significantly.
What does this data mean for the BoE?
The Bank of England governor Carney took a hawkish turn a week ago at the banking conference in Portugal. However, it is quite likely that BoE policy makers will acutely scrutinize the data.
Inflation is without a doubt the elephant in the room, however, aslowdown in consumer spending and weaker pace of wage growth could be seen as some of the factors that could limit the BoE’s hawkish intentions.
This week, data from the UK will include manufacturing and industrial production numbers alongside the monthly jobs report which could add further evidence to the divergence between wages and consumer prices.
