UK PMIs beats expectations but inflation readings weakOn May 24, 2020 by Thomas Belayneh
By Thomas Belayneh
A jam-packed week for updates on the state of inflation and economic activity for the UK economy revealed a still weak picture, although a marginal improvement on the dire readings of April.
The services PMI (released by IHS Markit) revealed a reading of 27.8 versus market expectations for 25, while the manufacturing PMI also revealed a positive surprise of 40.6 versus market expectations for a showing of 36.
Whilst the readings were above expectations, the theme of depressed and decreasing economic activity continued from April into May. Both readings are still a far cry from all-important 50 score – the dividing line between contraction and growth in economic output.
Manufacturing, the closer of the two to stabilising its sharp falls in activity, saw 54% of survey respondents report continued falls in output, whilst 24% reported rising output (month-on-month) although one must note this was mainly related to healthcare products.
Of particular concern, however, was the UK’s automotive supply chain which has been severely affected by key customers reducing their production schedules. This in turn has affected demand for intermediate goods used in building cars.
Turning to the services sector, the weaker of the two, revealed astounding answers to the survey from the travel, tourism & leisure sector. Unsurprisingly, the majority of companies in the sector reported virtually zero business.
Even among services sectors able to successfully implement remote-working practices, falls in clients spending on existing as well as new projects in May negatively impacted firms in business services.
There is however some goods news as Chris Williamson, chief business economist at IHS Market, says:
“An improvement in business confidence about the year
ahead for a second successive month is welcome news, and
the easing of restrictions in coming months should help boost
activity in some sectors as we head into the summer.”
Gfk’s consumer confidence notched one lower from -33 to -34 in May and reflecting continued job insecurity.
With debates heating up about the inflation and central bank rates implications of unprecedented monetary and fiscal stimulus, markets welcomed the timely arrival of inflation readings from the ONS.
Core CPI (stripping out food and energy) stood at 0.8% versus market expectations for a reading of 0.9% (year-on-year) whilst PPI slumped -9.8% on the prior year underperforming already pessimistic expectations for -8.7%.
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