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UK growth good but probably weakening

05 Feb 2016

The forward-looking and well-regarded Markit/CIPS PMI (Purchasing Managers' Indices) have just been released, collectively showing a slight upturn in economic activity, indicating GDP growth of 0.6% in the fourth quarter, up from 0.5% in the third quarter. However, order backlogs have started to fall at their fastest rate in three years, and companies are reducing their hiring needs, in response to the growing global economic uncertainty.

Issues cited are worries about higher US interest rates (not likely to be a significant factor in 2016, in Go Global's opinion), the possibility of 'Brexit', EU immigration tensions and a Chinese 'hard landing'

UK services (approx 78% of GDP) PMI was 55.6, up from 55.5 in December, and was the 37th consecutive month of expansion (a reading above 50 indicates that purchasing managers collectively expect expansion). The 12-month outlook was also positive, but the weakest in three years. Services input prices were also weak, meaning inflationary pressures continue to be benign, though some companies reported salary increase pressures.

The Manufacturing PMI (approx 13% of GDP) was 52.9, up from 52.1 in December - the 34th successive expansionary month. The key driver was the domestic market, with export orders continuing to disappoint - the strong pound/euro exchange rate being a factor. As with services, input costs were weak, and staffing levels also fell slightly

Construction (approx 7% of GDP) PMI was 55.0, down from 57.8 in December. Although still expansionary, job creation was at its slowest for two and a half years, and construction firms recorded their lowest business confidence since December 2014. Softer growth (but still growth!) in commercial construction and house building activity were the main reasons for softness, but were offset somewhat by an upturn in infrastructure related projects

The PMI data from Markit/CIPS are highly regarded as reliable forward-looking data. The data is compiled from responses from companies' Purchasing Managers, and are based on hard facts, not opinion, on what is happening at 'grass roots' level in the economy

For the actual releases click here:

Services

Manufacturing

Construction

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