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UK CommentPMI surveys point to decelerating GDP growth

  1. Services PMI down to 52.2 in October, pulled down by new and current business
  2. Future expectations in services sector the lowest since July 2016
  3. PMI composite down to 52.1 in October from 54.1 in September
Services PMI down to 52.2 in October, dragged down by new and current business
The UK services PMI fell more than expected in October. The PMI index declined to 52.2 in October from 53.9 in September. The consensus expectation was 53.3. At 52.2 the services index signals the slowest rate of business activity expansion since March this year, when activity was adversely affected by cold weather. Services sentiment was pulled lower by a weakening of incoming new business and current business activity. According to the survey, respondents noted that heightened economic uncertainty and a soft patch for new work had held back business. The growth in new work fell to its weakest since July 2016. The backlog of work fell into negative territory again. The employment index also fell in October, but according to the survey, that might have been partly due to a lack of skilled candidates to fill vacancies. Input prices had increased again in October, which was mainly linked to higher fuel bills and rising staff wages. Intense pressure on operating margins had persisted in October, according to the survey. The sub-index measuring future expectations fell further in October, and is currently at its weakest since just after the Brexit referendum. Many respondents saw a deepening malaise due to Brexit-related disruptions and general concerns about the economic outlook.
Surveys suggest GDP growth could fall to 0.2-0.3 percent
Last week, the PMI construction index came in higher than the market consensus, while the PMI manufacturing was weaker than expected. Given the weakness also in the services PMI, the PMI composite fell to 52.1 in October from 54.1 in September, and was considerably weaker than the consensus expectation of 53.4. While monthly GDP numbers improved quite notably at the start of Q3, the PMI surveys suggest that this rebound from weak numbers in the first half of the year probably will not last. Based on past form, the composite PMI suggests quarterly GDP growth could decelerate to around 0.2-0.3 percent.

 


Source: Macrobond

 


Source: Macrobond


Source: Macrobond Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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