The UK Purchasing Managers’ Index (PMI) took a post-referendum wallop in July, with the composite index (both manufacturing & services but excludes construction) falling from 52.4 to 47.7 – the lowest reading since April 2009 when the UK was still reeling from the financial crisis {Remember with the PMIs 50 is the threshold between expansion (>50) and contraction (<50)}.
If maintained, it would typically mean a contraction of 0.4% in GDP in Q3 – a sharp reversal from Q2’s 0.6% rise. UK services output slumped to 47.4 in July – its lowest reading since March 2009. New orders in the service sector were particularly hard hit (45.5) as businesses entered ‘wait and see’ mode. Even service sector hiring seems to have been put on hold.
Manufacturing output also returned to contraction territory (49.1) for the first time since March 2013. However, the decline in manufacturing activity was much less pronounced than what was reported by the services sector. And a chink of light is that new export orders rose to its highest reading in almost two years – a presage that sterling’s recent fall may provide a boost to exports?
Construction activity slumped in June (46.0) and figures for July are not yet available. The hope is that it’s an initial shock which sees at least some rebound next month. After all in the immediate aftermath of the Brexit vote it looked like there would be no new Prime Minister (& Cabinet) until September.
The eagerly awaited July PMI survey for Northern Ireland will be released on Monday 8th August. Northern Ireland construction firms reported a contraction in activity in Q2 and this trend is expected to continue in Q3. The key focus in the July Northern Ireland PMI will be whether the local services sector mirrors the marked reversal in fortunes reported in the UK survey.