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6 May 2016
UK: Services PMI falls to multi-year low - ING
James Smith, Economist at ING, notes that the services PMI completed the set of disappointing surveys released this week, emphasising the fact that 2Q growth is likely to be weak.
Key Quotes
“After disappointing readings from the manufacturing and construction sectors earlier in the week, the UK services PMI fell to 52.3 from 53.7 last month. Like the manufacturing PMI, this is the lowest reading since early-2013 and is another indication that the UK economy is losing steam.
Beneath the headline figure, the employment component fell to its lowest level in two-and-a-half years, mirroring other data/surveys which suggest that firms are holding back on investment/hiring plans in response to uncertainty surrounding the outcome of the forthcoming EU referendum. As a result, we anticipate that second quarter growth is likely to come in weaker than the 0.4% QoQ figure recorded in the first quarter, which would mark the slowest rate of GDP growth since 2012.
The outlook for interest rates now largely depends on the outcome of the EU referendum. Should the UK vote to remain in the EU, then it is likely that activity will rebound as sentiment recovers and delayed business investment and employment plans are implemented. However, the jury is still out on whether the recent economic weakness is entirely attributable to vote-related weakness, so the actual timing of the first rate hike depends on the speed and magnitude of recovery in the UK data post-referendum. Should the UK vote to leave the EU, then the potential for weaker business sentiment could prompt the BoE to loosen policy to pre-empt any near-term economic weakness.”
Key Quotes
“After disappointing readings from the manufacturing and construction sectors earlier in the week, the UK services PMI fell to 52.3 from 53.7 last month. Like the manufacturing PMI, this is the lowest reading since early-2013 and is another indication that the UK economy is losing steam.
Beneath the headline figure, the employment component fell to its lowest level in two-and-a-half years, mirroring other data/surveys which suggest that firms are holding back on investment/hiring plans in response to uncertainty surrounding the outcome of the forthcoming EU referendum. As a result, we anticipate that second quarter growth is likely to come in weaker than the 0.4% QoQ figure recorded in the first quarter, which would mark the slowest rate of GDP growth since 2012.
The outlook for interest rates now largely depends on the outcome of the EU referendum. Should the UK vote to remain in the EU, then it is likely that activity will rebound as sentiment recovers and delayed business investment and employment plans are implemented. However, the jury is still out on whether the recent economic weakness is entirely attributable to vote-related weakness, so the actual timing of the first rate hike depends on the speed and magnitude of recovery in the UK data post-referendum. Should the UK vote to leave the EU, then the potential for weaker business sentiment could prompt the BoE to loosen policy to pre-empt any near-term economic weakness.”