PMIs show quarterly GDP drop of 0.1%

Will Green is news editor of Supply Management
4 December 2019

The UK services sector slipped into contraction in November against a background of subdued demand and the sharpest fall in new work since July 2016.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index dropped to 49.3 in November, down on 50 in October, which signalled neither contraction nor expansion.

Demand from export markets was particularly weak with firms yet again reporting Brexit uncertainty resulting in delays to investment decisions.

Input price inflation slowed for the third consecutive month, with companies reporting a rise in operating expenses citing higher salary payments and increased costs for imported items. Prices charged by service providers rose only modestly.

Duncan Brock, group director at CIPS, said: “Despite this stagnation, a chink of light emerged amongst the services gloom as optimism for the future was the brightest since July 2019. With the advent of the New Year, firms were in a more hopeful mood that the trading landscape had to improve in 2020.”

Meanwhile, the construction sector remained in contraction in November with a reading of 45.3, up on 44.2 in October but still below the no-change 50 mark.

All three areas of construction recorded a fall in output, with civil engineering the worst-performing category, followed by commercial building.

There was a solid reduction in purchasing activity and weak demand resulted in vendor lead times lengthening to the smallest extent since September 2010.

UK manufacturing’s downturn continued in November, with output, new orders and employment all falling. The PMI fell to 48.9, down on 49.6 in October and below the 50 neutral reading for seven consecutive months.

New orders fell for the seventh month in a row, with firms attributing this to destocking at clients following the 31 October Brexit date and continuing political and economic uncertainty.

Finished goods inventories fell at the steepest rate in over two-and-a-half years, while input buying volumes dropped to one of the greatest extents since early 2013.

Average selling prices increased for the 43rd month in a row, though inflation was mild. Input costs decreased marginally for the first time since March 2016, linked to lower global commodity prices and exchange rate effects.

Tim Moore, economics associate director at IHS Markit, said: “November's PMI surveys collectively suggest that the UK economy is staggering through the final quarter of 2019, with service sector output falling back into decline after a brief period of stabilisation.

“Lower manufacturing production alongside an absence of growth in the service economy means that the IHS Markit/ CIPS Composite Output Index is consistent with UK GDP declining at a quarterly rate of around 0.1%.”

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