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UK Manufacturing and Services Sector PMI in July
July’s manufacturing purchasing managers index (PMI) came out as 48.0, slightly better than the expected 47.7. Results were the same as in June that saw manufacturing PMI drop to a six-year low last seen in February 2013. On the other hand, UK’s July services PMI came out to be as 51.4 higher than the expected 50.3 and reaching nine-month high. Among services, consumer services sector performed the best.
First of all, if you see a value of below 50 that means contraction has occurred in the sector, and the value above 50 shows expansion in the sector.
Manufacturing PMI survey is based on the performance of 600 industries. In July, the production volumes decreased fastest in seven years. The reason for this decrease, as reported by the companies, was weaker demand from global and domestic markets, and some buyers taking supply chains out of the UK due to the increased probability of no-deal Brexit. Results also indicate manufacturing staff recruitment freeze and as a result, hiring decreasing for the fourth month in a row this year.
An interesting thing to notice in the report is the optimism shown by the respondents for the coming months. 46% of the participants are expecting higher outputs and believe that this value of 48 was the limit of contraction that we saw.
So why are manufacturers optimistic about the future? The reasons for this are new product launches, post-Brexit reduced uncertainty and better infrastructure, such as 5G networks.
Demand is expected to increase as we approach the likely hood of no-deal October Brexit deadline and subsequently buyers stockpiling goods. Bear in mind, if the demand increases in the short-term that would mean the sales would fall after Brexit as people having already purchased the goods.
On the other hand, despite the nine-month high services PMI, the result was lower than the average of 55 for the last five years. This aggravates the concerns for this sector. The services sector accounts for 80% of the UK’s economy and therefore is considered to be the most important sector. This is the reason that despite beating the expectations, the data had no significant impact on the Sterling.
In July, due to a weaker pound, companies reported better sales and a significant increase in the cost of business. You can expect this trend to likely continue for the upcoming months.
Based on these PMI numbers, we can expect UK’s GDP data for the second quarter, out tomorrow, to likely show a notable retreat from the 0.5% growth of the first quarter.
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