UK Services sector outperforms in August

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ukThe UK’s economic activity as measured by the manufacturing, construction and services sector showed that businesses were struggling to hire. Based on the monthly reports, the UK’s economy was seen to be on track to post a 0.4% quarterly growth in the current quarter.

However, this would match the same pace of growth that was registered in the previous quarter and would still be a reasonably modest pace of growth compared to the years before the Brexit referendum.

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Experts warn that further weakness in the economy could be anticipated in the coming months as the timeline for the final Brexit negotiations nears.

Services sector outperforms other sectors in August

Of the three sectors, the services sector was more favorable during August. The services sector showed that businesses maintained a steady pace of activity with the number of new orders ticking higher.

UK Services PMI
UK Services PMI, August 2018: 54.3 (Source: IHS Markit/ONS)

Despite the better than expected print, optimism was subdued based on the survey’s average. Companies reported struggling to hire the right talent, and the lack of skill set also posted a drag.

The services PMI ticked higher to 54.3 in August. This beat estimates of 53.9 and activity were seen rising from 53.5 from July. The headline print for August was the second highest since February this year. Growth in new incoming work picked up slightly since July but was seen to be soft.

Backlogs of work were seen increasing for the fourth consecutive month in August indicating a sustained pressure on operating capacity.

Construction activity slips

Activity in the construction sector pointed to a decline with growth easing to a three month low for August. There was a broad-based decline across all categories in the industry. Despite the bleak report, there were signs of resilience with underlying workloads increasing.

UK Construction PMI
UK Construction PMI, August 2018: 52.9. (Source: IHS Markit/ONS)

Interestingly, the employment growth remained at a two and a half year high since July. Demand for construction inputs was seen increasing slightly.

For August, the construction PMI fell to 52.9. It was down from July’s 55.8 which marked a 14 month high.

Commercial building activity was seen to be the best performing area in the sector during August. The pace of expansion in the housing activity was, however, the weakest since March this year.

Growth in new businesses in the construction sector eased from July’s 14 month high.

Tim Moore, Associate Director at IHS Markit, said, “The construction sector slipped back into a slower growth phase in August, with this summer’s catchup effect starting to unwind after projects were delayed by adverse weather at the start of 2018.”

UK factories feel the pressure from global markets

Manufacturing activity was also bleak. The index fell to 52.8 in August from July’s print of 53.8. The decline came on the back of a drop in export orders. The August PMI for the manufacturing sector was the lowest since July 2016.

UK Manufacturing PMI
UK Manufacturing PMI, August 2018:52.8 (Source: IHS Markit)

The manufacturing PMI underlined the fact that the global economy could be heading for a slowdown. Some factors contributing to this came from the Brexit uncertainty and the global trade wars.

The contraction in exports contributed to the decline which showed that impact of a possible no deal in the Brexit negotiations. The manufacturing sector accounts for nearly 10% of the UK’s GDP growth.

The growth of new orders slipped to a two-year low with the drop in exports the weakest since April 2016.

“Some firms linked lower inflows of new work from abroad to the recent weaker pace of expansion of the world economy,” Markit said.

Rob Dobson, IHS Markit director, said that the latest manufacturing PMI report was consistent with zero growth in the sector. “The sector will likely fail to provide any support to the wider UK economy in the third quarter,” he said.

The Bank of England will be meeting today for its monetary policy meeting. No changes are expected to interest rates this month.

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