UK PMI’s in March recover from February lows

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  • Manufacturing and construction PMI slows in March
  • Services PMI rises to the highest level this year
  • UK all-sector PMI suggests UK’s GDP might have expanded at a pace of 0.4% in the first quarter of 2017
  • Weak readings in manufacturing and construction suggests worsening conditions in the coming months
  • Consumer-focused services saw turning weaker in the services PMI
  • Despite overall weakness, price pressures evident across all sectors

Business activity across manufacturing, construction, and services sector in the UK fared seemingly better in March, compared to the previous month. The forward-looking Purchase Managers Index survey showed that businesses regained some momentum across the board.

But the pace of recovery wasn’t strong enough, suggesting that downside risks still exist. Construction growth was seen slowing in March and follows a similar result from the manufacturing sector as well.

The headline Markit/CIPS construction PMI in the UK fell to 52.2 in March, 0.3 points lower from February’s 52.5, which brought the first quarter average down to 52.3, compared to the fourth quarter of 2016.

Manufacturing PMI Falling

The manufacturing PMI was also soft, suggesting that activity could slow even further in the coming months. Despite the bleak outlook, the data showed that price pressures remained elevated suggesting that inflationary pressures at the factory gate continued.

The manufacturing PMI in the UK fell for the third consecutive month, posting a reading of 54.2 in March which marked a four-month low. The manufacturing sector’s output index showed even steeper declines indicating that further weakness can be expected. Still, offering a glimmer of hope was the fact that the output index was recorded at 50, indicating a flat pace of expansion.

A reading below 50 in the coming months could signal contraction in the sector.

Based on the latest data, the manufacturing sector in the UK is expected to contribute less to the economic growth for the nation, which is tipped to see a slower pace of gross domestic product during the first quarter of 2017.

The forward-looking indicators suggested that activity might slow in April with a number of inputs rising at the slowest pace in eight months.

Services PMI

While manufacturing and construction PMI’s stayed weak, services PMI showed a strong increase this year. The services PMI for March showed a strong rebound in activity registering a headline print of 55.0, accelerating from 53.3 in February.

Cost pressures were also evident in the services sector which showed the fastest pace of increase in prices charged by firms since September of 2008.

The all-sector PMI in the UK for March rose to 54.7, up from 53.7 in February largely thanks to the services activity. However, challenges remain as the manufacturing and construction sectors continue to post a drag.

UK PMI and GDP compared (Source: Markit)
UK PMI and GDP compared (Source: Markit)

According to Markit, March’s data combined with the previous months in the first quarter suggest that the UK economy might have expanded at a pace of 0.4% in the first quarter.

The data also suggests that consumer demand also likely slowed based on weak demand seen from consumer-oriented services with only the financial services seen to be resilient to the downturn.

BOE Policy

As far the policy implications are concerned, the Bank of England is expected to remain on the sidelines in the coming months unless the PMI’s show further deterioration as being signaled currently.

On the economic front, data from the UK today will see the release of the manufacturing, industrial and construction output numbers.

Overall, economists polled are hopeful of a recovery in all three sectors following a strong decline across the board in January this year. But if the forward-looking PMI’s are anything to go by any uptick in the output is likely to be short-lived with data in the coming months likely to rise at a slower pace.

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