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UK CommentPMIs signal disappointing start to Q2

  1. Second weakest growth in services activity since September 2016
  2. Underlying growth trend seems weaker than we expected earlier
  3. May hike from the BoE seems unlikely now
Second weakest growth in services activity since September 2016
The UK PMI services index increased to 52.8 in April from 51.7 in March. The consensus expectation was for a more pronounced rebound to 53.5. The PMI composite increased to 53.2 in April from 52.4 (revised from 52.5) in March, while the consensus expectation was 53.7. The services sentiment was pulled up by incoming new business and business activity in April, but the rate of growth was the second weakest since September 2016 according to the survey. This was rather disappointing as a healthier rebound had been expected after weather-related weakness in Q1. At the same time inflationary pressures moderated and employment growth weakened. A number of survey respondents noted that subdued consumer willingness-to-spend had held back business activity growth in April and there were also reports that concerns about the domestic economic outlook had acted as a brake on spending by corporate clients. Higher salary payments continued to push up cost burdens. However, the overall rate of input price inflation eased since March and remained softer than at any time in 2017, according to the survey. Moreover, the latest rise in average prices charged by service sector firms was the joint-slowest since July 2017.
May hike from the BoE seems unlikely now
Earlier this week the manufacturing PMI was reported to have fallen further in April, while the construction PMI rebounded to positive territory and was stronger than the consensus expectation. Taken together, the sentiment in the three sectors suggest that the rebound in Q2, after unusually cold weather in Q1, was rather disappointing. It seems the underlying growth trend might be weaker than we expected earlier. We had expected the BoE to hike the policy rate in May, but after weaker-than-expected numbers for inflation, GDP and economic sentiment, we now think a May hike is rather unlikely. The probability for a May hike, according to market pricing, dropped to 8.7 percent after this week’s PMI numbers.


Source: Macrobond


Kari Due-Andresen

Chief Economist Norway

Norway and UK

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