UK PMIs point to growth, but with less momentum - ING

James Knightley, Senior Economist at ING, suggests that the UK service sector PMI is a little disappointing, but at least shows the economy continues to expand.

Key Quotes

“The UK service sector purchasing managers’ index has dipped very modestly to 52.6 from 52.9. This is better than the consensus forecast of 52.2, but given the strong readings of manufacturing and construction PMIs earlier in the week, this is perhaps a little disappointing. The manufacturing index bounced to its highest level since June 2014 and the construction index recovered to the levels seen in the first quarter of this year. The services PMI is above the level of June, just ahead of the EU referendum, but not as strong as May’s figure of 53.5.

Consequently, the composite index now stands at 53.9, up from 53.6 in August. However, with the average reading for the quarter coming in at 51.7 the survey compiler suggests that these surveys are consistent with the economy having grown 0.1%QoQ in 3Q16. We think the actual outcome may be a little stronger given firm consumer spending figures, but think that in aggregate the UK has lost some momentum and this will be increasingly evident in coming quarters. The uncertainty Brexit is generating will likely lead to slower employment growth and a decline in investment, while rising inflation will eat into household spending power as we move through 2017.

While the relatively healthy UK economic data diminishes the chances of a November rate cut from the Bank of England we think the case for further stimulus will remain strong. However, there is likely to be a greater focus on the fiscal side in the near term.”