According to the Purchasing Managers’ Index (PMI), a survey from IHS Markit, private sector growth waned to its weakest in nine months, with the eurozone’s index score dropping to 53.3, down from 55.4 in November. Any score exceeding 50 indicates growth, meaning this decline represents a slowdown instead of a contraction. However, GDP in Germany appeared more concerning, with a PMI of 49.9, suggesting that business activity in the nation may be shrinking.
Manufacturers in Europe expanded faster than services businesses for the first time since last summer. This suggests a return to the pattern seen at the beginning of the pandemic when physical goods productions and sales were stronger than those involving in-person transactions. Nonetheless, factory bosses remain concerned about the potential of a renewed slowdown.
In Germany, car manufacturers account for approximately one-tenth of the country’s economy. Those in the industry have reported increasing pessimism, with the ifo Institute warning that the business situation has been worsening for the past five consecutive months.
According to IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI), a lack of raw materials and available UK workers has caused August’s reading to drop to 55.0, notably lower than the 59.6 recorded in July. However, the PMI marked a fifth month exceeding the 50 threshold. Any recording over 50 indicates growth.
In a comment, group director at the Chartered Institute of Procurement and Supply, Duncan Brock, said: “The third consecutive monthly fall in growth in the services sector showed that a lack of staff and raw materials in August continued to rein back on recovery, after the spring surge.”
PMI’s data shows that staff recruitment picked up in August to its strongest since the survey began in July 1996, as businesses pushed to rebuild workforce numbers amid rising sales. However, due to highly competitive labour market conditions, August also saw a sharp climb in wages pressures.
Business optimism also increased to a three-month high. While 8% of survey respondents expected a decline, 60% forecasted expansion.
UK Services PMI has risen by the 5.5 points to 52.9, the biggest ever jump in the survey’s 20 year history.
The rise is a sharp bounce back from the 47.4 reading taken in July in the immediate aftermath of the EU referendum.
The pound jumped almost a cent against the dollar on the back of the news.
Laith Khalaf, Senior Analyst at Hargreaves Lansdown comments:
‘The service sector is the engine room of the UK economy, so a return to form represents a welcome vote of confidence in the country’s financial prospects. With parliament now back from summer holidays, the serious business of negotiating withdrawal from the EU begins in earnest. Brexit is going to be a lengthy process, with plenty of ups and downs along the way, so economically speaking it’s still way too early to start counting any chickens just yet.
It’s also worth bearing in mind that dramatic bounce-backs are often a reflection of the depths of previous despair, rather than of optimism over the future. In terms of services output, today’s reading is simply in line with survey results earlier in the year, and it is last month’s sharply negative reading which is the outlier.
Since the referendum economic indicators have by and large held up pretty well, and if the positive mood music continues that should put a spring in the step of the pound on the currency markets. More robust economic data would also make the central bank think twice about any further loosening of monetary policy, and may also play its part in determining the future of austerity, as we approach the new chancellor’s Autumn Statement later on in the year.’
(Source: Hargreaves Lansdown)
