UK Economy Remains Robust Show PMIs

Image: Dave Collier, sourced: Flickr, licensing: CC 2.0.

The UK economy slowed between August and September, according to a new survey, but it nevertheless continues to expand and is outdoing that of the Eurozone.

The UK Composite PMI read at 52.9 in September, which is consistent with an expansion in economic output, although the figure was down on August's 53.8. By contrast, the Eurozone saw its Composite PMI fall to 48.9 from 51, signalling the single currency bloc is entering recessionary territory.

UK private sector firms indicated a sustained upturn in business activity during September said S&P Global, compilers of the report. This marks 11 months of continuous expansion.

"However, output growth slowdowns in both manufacturing and services meant that the overall speed of recovery moderated for the first time since June," says S&P Global.

The UK's manufacturing sector expanded with a reading of 51.5, but this was down from August's 52.5 and below consensus expectations of 52.3. Comparing this to Germany's manufacturing PMI of 40.3 and that of the wider Eurozone at 44.8 shows that the UK's manufacturers are holding out better than most.

The Services PMI showed that the UK's most dominant sector continued to expand with a reading of 52.8. Again, this was lower than the previous month's 53.7 amd was below predictions of 53.5.

There was some good news for the Bank of England as prices charged inflation across the private sector economy eased to a 42-month low in September. This should bolster confidence that the Bank will cut interest rates again in November, having opted to keep them unchanged last week.

Nevertheless, the case was made by the Bank to proceed with caution, and this approach will be backed up by the PMI's finding that "there were still signs of elevated cost pressures in September. The overall rate of input price inflation picked up since August, driven by higher wages and shipping costs."

Looking ahead, S&P Global said September data pointed to another month of robust new business gains, led by strengthening order books across the service economy.

Survey respondents noted improving sales pipelines alongside successful marketing and promotional initiatives.

"However, in both the manufacturing and service sectors, there were some reports of clients adopting a wait-and-see approach to decision-making ahead of the Autumn Budget," said S&P Global.

The government has warned of a tough budget announcement in October that is expected to see spending restraint and tax rises announced. The government has meanwhile adopted a cautious and sombre tone regarding the outlook, warning of "tough decisions" ahead.

The tone of the new government has prompted caution amongst businesses and consumers alike and could yet spell a further slowdown in the UK economy through the Autumn.