PMIs signal 'overall stagnation'

Will Green is news editor of Supply Management
6 January 2020

The UK services sector showed signs of a return to stability in December following an increase in new work.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index recorded 50 in December, signalling neither expansion nor contraction but up on 49.3 in November.

Survey respondents noted a boost in activity from higher customer demand while the data revealed a modest expansion in new work received by service sector companies, ending a three-month decline.

Business optimism reached its highest level since September 2018, with firms predicting a short-term boost from increased Brexit certainty.

The data indicated a strong increase in average cost burdens, with the rate of inflation picking up on November’s 39-month low, linked to stronger wage pressures. However, prices charged by services sector firms rose only slightly.

However, for the construction and manufacturing sectors the picture was less bright, with both recording drops in business activity.

Construction saw the sharpest fall in civil engineering activity since March 2009, with the PMI recording 44.4 in December, down on 45.3 in November and against the neutral reading of 50. Commercial work also saw a sharp drop while house building fell for the seventh month in a row.

A decline in input buying alleviated supply chain bottlenecks and vendor lead times lengthened to the least marked extent since September 2010, while the increase in overall purchasing costs was only modest and the weakest for almost 10 years.

Output in the manufacturing sector contracted at the fastest pace since July 2012 in response to declining intakes of new work from both domestic and overseas clients.

The PMI recorded 47.5 in December, down on 48.9 in November and the second-weakest level for almost seven-and-a-half years.

Contractions were signalled in both intermediate and investment goods, with only a marginal expansion in the consumer goods category.

Input prices rose slightly for the first time in three months and manufacturers responded by raising output charges to the greatest extent for six months. Holdings of purchased and finished goods inventory decreased, mainly due to firms reducing Brexit safety stocks and a steep cut in input buying volumes.

Duncan Brock, group director at CIPS, said: “Though the result of the General Election will bring some clarity to businesses, it still feels like a long road ahead for manufacturing to recover its losses from this year and there will still be some obstacles to overcome in 2020.”

Tim Moore, economics associate director at IHS Markit, said: “Service companies widely commented on delayed spending decisions and a headwind to sales from domestic political uncertainty in the run-up to the General Election.

“With manufacturing and construction output also subdued in December, the latest PMI surveys collectively signal an overall stagnation of the UK economy at the end of 2019.”

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