The UK Manufacturing and Services PMI data dropped below expectations, pushing the pound lower. Sterling hit monthly lows after the disappointing PMI data. The GBP/USD pair was also lower as hopes of a US debt-limit deal have supported the US dollar.
Investors’ focus has now turned to Bank of England (BoE) Governor Andrew Bailey who will testify on monetary policy before the UK Treasury Select Committee. Along with Bailey, chief economist Huw Pill, and Monetary Policy Committee members Catherine Mann and Silvana Tenreyro will also be questioned about this month’s interest rate rise to 4.5%.
UK PMI data
S&P Global/CIPS UK Manufacturing PMI has contracted to 46.9 in May, while the Services PMI came at 55.1 in May, missing expectations.
According to Chris Williamson, chief business economist at S&P Global Market Intelligence, UK manufacturing and services diverge. While the services sector is growing, the manufacturing sector is suffering.
He explained: “The UK economy enjoyed another month of strong growth in May, with the expansion continuing to be driven by surging post-pandemic demand in the service sector, notably from consumers and for financial services, with hospitality activities buoyed further by the Coronation.” The surveys reflect the economic growth with GDP rising 0.4% in the second quarter after a 0.1% rise in the first quarter. But this has pushed inflation higher, with service providers finding it difficult to meet demand, pushing wages higher o attract staff and charging more for their services.
On the other hand, spending in the manufacturing sector has moved away from goods and towards services, with many companies reducing their inventories, pushing demand, output and prices lower.
UK private sector growth slows down in May
As the latest survey of purchasing managers in the UK showed this morning, growth among UK companies dropped significantly. While many firms increased their prices, it was the services sector that drove economic growth in May, especially businesses in travel, leisure, and hospitality. These sectors benefited from strong consumer demand. On the other hand, production in manufacturing firms fell, marking the sharpest drop in four months.
This resulted in the S&P Global/CIPS flash UK composite output index dropping to 53.9 in May, down from April’s 12-month high of 54.9. In terms of costs, companies reported a slight easing in input price inflation due to lower energy bills and reduced raw material costs for factories. However, services firms had to deal with higher costs due to significant wage inflation.
In May, private sector companies raised their prices at a historically steep rate, although the inflation rate was the second-lowest since August 2021. This situation might prompt the Bank of England to continue increasing interest rates in an attempt to combat inflation.
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