Services PMI 47.9 vs 51.7 expectedPrior 52.7Manufacturing PMI 53.7 vs 53.0 expectedPrior 53.7Composite PMI 48.5 vs 51.6 expectedPrior 52.6
Ouch. That’s a big miss on the services print as business activity there falls to the lowest in 64 months. That’s leading UK economic activity to contract in May, with the composite print being the weakest in 13 months.
Service firms signaled the sharpest decline in business
activity since January 2021 citing greater economic hesitancy and
weaker investment sentiment among clients, alongside
delayed consumer spending decisions in response to the
Middle East conflict. Aside from the Covid pandemic, the
latest reading was the lowest for nearly a decade (July 2016).
As for the stronger manufacturing print, it’s mostly due to frontloading as a temporary demand pick up was noted to beat price hikes and
potential supply disruptions. So, the underlying negative impact from the Middle East conflict runs much deeper.
On the prices front, input price inflation did ease slightly since April but
remained well above its long-run average. Meanwhile, prices charged by UK private sector firms continued to rise
sharply although at a slightly slower pace than the 39-month
high seen in April.
Trouble, trouble. S&P Global notes that:
“The UK economy is facing a perfect storm, as rising political
uncertainty adds to the growing impact from the war in the
Middle East. Businesses are reporting falling output, surging
inflation, supply shortages and job cuts in May.
“The May PMI data indicate that the economy contracted at
a 0.2% quarterly rate, representing a marked contrast to the
robust growth seen earlier in the year. The blame lies first and
foremost with the war in the Middle East, though companies
are also noting that domestic politics are taking an increasing
toll, driving uncertainty higher, in turn deterring spending,
hiring and investment.
“Things could well get worse in the coming months, as we
have been seeing some support to manufacturing from
precautionary stock building which will inevitably fade once
warehouses are full.
“Just as the economy shows signs of sinking into decline,
prices are surging higher to herald a marked upturn in
inflation in the months ahead as these costs pass through to
consumers.
“This combination of a faltering economy and spiking price
pressures leaves the Bank of England in a major quandary,
facing the growing need to hike rates to help contain inflation
but thereby adding to recession risks.”
This article was written by Justin Low at investinglive.com.