Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674
Email: ruthlea@arbuthnot.co.uk

 

From the desk of Ruth Lea

Economic insight and financial comment related to the ever-changing financial landscape and the economic world at large.

Economic Perspectives

19th August 2019

Economic Insight - 19 August 2019

UK GDP slips in 2019Q2: a correction, not recession
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the GDP data for 2019Q2:
Press Release

UK GDP slips in 2019Q2: a correction, not recession

Date: 19th August 2019

UK GDP slips in 2019Q2: a correction, not recession
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the GDP data for 2019Q2:
    • GDP fell by a greater-than-expected 0.2% (QOQ) in 2019Q2, after the 0.5% rise in 2019Q1.
    • GDP in 2019Q1 was boosted by preparations for the initial Brexit Day (29 March), including very substantial stockpiling. GDP in 2019Q2 was dragged down by major destocking, as well as partial closures of various car manufacturing plants (annual shutdowns brought forward).
    • Of the other expenditure components, household consumption rose 0.5% (QOQ) in 2019Q2, compared with 0.6% in 2019Q1, whilst general government final consumption increased by 0.7% (QOQ). Gross fixed capital formation slipped 1.0%, within which business investment was down 0.5%, after a 0.4% increase in 2019Q1. Net trade showed a marked improvement, mainly reflecting lower imports.
    • Concerning the industry breakdown, services growth was a weak 0.1% (QOQ), whilst production contracted by 1.4% and construction fell by 1.3%.
    • It should be noted that early GDP estimates are prone to revision.
    • Concerning prospects for 2019Q3, NIESR is expecting a rise in GDP of 0.2% (QOQ). July’s retail sales rose by a better-than-expected 0.2% (MOM), to be 3.3% higher YOY.
    Concerning other data:
    • GDP was flat (MOM) in June, within which services were also flat (MOM).
    • The trade deficit fell by £16.0bn to £4.3bn (current prices) in 2019Q2, mainly reflecting a dramatic fall in imports following sharp increases in 2019Q1, prior to the initial Brexit Day.
    • The labour market remains robust, on the whole. Employment rose by 115,000 (QOQ) in 2019Q2 to 32.81mn, a record high. But the unemployment rate inched up to 3.9% (still the lowest since early 1975). Vacancies have slipped a little in recent months but remain near record highs.
    • There have been employment increases over the past year in a wide range of industries (including manufacturing and education), but employment has fallen in others – notably “wholesale, retail, motor repairs”.
    • Average earnings are picking up. In 2019Q2, they rose by 3.7% (YOY, total pay) and 3.9% (YOY, regular pay). In real terms, they rose by 1.8% (YOY, total pay) and 1.9% (YOY, regular pay).
    • Productivity growth remains very weak, but it partly reflects the robust growth in employment.
    • CPI inflation picked up modestly in July to 2.1% (YOY), whilst producer prices inflation also picked up in the month. However, inflationary pressures still seem well contained.
    • House prices inflation remains subdued, prices rose just 0.9% (YOY) in June. London remains the worst-performing region, with prices down by 2.7% (YOY).
    Finally, the Chancellor announced there would be a “fast-tracked one-year Spending Round”, completed in September, to fund departments’ FY2020 activities. A full multi-year Spending Review will be held in 2020.


    Ruth Lea said, “…after the release of the 2019Q2 GDP data, there was speculation that the UK economy was falling into recession. But the fall in the second quarter should be seen as a correction to the first quarter, which was boosted by preparations prior to the initial Brexit Day (29 March). There was a huge swing from large stock-building in the first quarter, to almost as large destocking in the second. NIESR expects 0.2% GDP growth in 2019Q3 which, though speculative at this stage, seems reasonable. If so, then the economy would not fall into recession as defined in the conventional sense of two consecutive quarters of declining GDP. But even if there were some slippage in 2019Q3, this would not, in itself, herald the sort of recession we experienced in the mid-1970s, the early-1908s, the early-1990s and the Great Recession, when there were significant losses of output and rising unemployment.”

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk
Follow Ruth on Twitter @RuthLeaEcon

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
arbuthnot@maitland.co.uk
Download full article

5th August 2019

Economic Insight - 05 August 2019

The slowing global economy: the Central Banks respond
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the recent international developments, focussing on the Central Banks:
Press Release

The slowing global economy: the Central Banks respond

Date: 5th August 2019

The slowing global economy: the Central Banks respond
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the recent international developments, focussing on the Central Banks:
    • The IMF modestly downgraded its growth projections further in its July interim outlook.
    • One the IMF’s concerns related to “trade wars” tensions, which appeared to be easing in July. However, President Trump announced fresh tariffs on another $300bn of Chinese imports on 1 August.
    • The ECB did not change monetary policy at its July meeting, but its dovishness in the face of sluggish Eurozone growth has heightened expectations of a cut in rates in September and further QE.
    • The Eurozone economy grew by 0.2% (QOQ) in 2019Q2 (flash estimate), to be just 1.1% higher YOY.
    • The Fed cut the federal funds rate by 0.25% to 2.0-2.25%, reversing the increase in December 2018, at its July meeting, as expected.
    • The US economy is performing relatively well. Granted, GDP growth in 2019Q2, at 2.1% (annualised), was down on Q1’s 3.1% but this is respectable by international standards. The unemployment rate is just 3.7% (July), around the lowest since 1969.
    • The Bank of England did not change monetary policy at its July meeting.
    • The Bank did, however, reduce its GDP forecasts to 1.3% for 2019 (1.5% in May) and the 1.3% in 2020 (1.6% in May), assuming a “smooth” Brexit. It now expects GDP to be flat (QOQ) in 2019Q2 (an increase of 0.2% was expected in May). The outlook for UK monetary policy would depend crucially on whether Brexit was “smooth” or “no deal”.
    • The Bank noted that market expectations for interest rates had softened. The markets are now fully pricing in a 0.25% cut during 2020H1.
    • The Bank also noted the weakness of sterling, on heightened expectations of a no deal Brexit.
    UK data:
    • The only major release related to the Bank’s money and credit data. The annual growth of consumer credit continued to slow in June, when it was 5.5%.
    Concerning UK politics, and Brexit:
    • Boris Johnson was elected Conservative Party leader on 23 July and became PM on 24 July. The Commons rose for the summer recess on 25 July (back on 3 September).
    • Sajid Javid was appointed the new Chancellor of the Exchequer. His in-tray includes the 2019 Spending Review and the Autumn Budget.
    • The Liberal Democrats gained the previously Conservative-held seat of Brecon on 1 August. The Conservative Government (supported by the DUP) now has an overall majority of just one in the Commons.
    • On Brexit, PM Johnson has promised to deliver Brexit on 31 October, the current legal default day. New Chancellor of the Duchy of Lancaster, Michael Gove, has been charged with overseeing the (stepped-up) “no deal” Brexit preparations.


    Ruth Lea said, “…as the major forecasting institutions continue to dampen down their growth expectations, some central banks are adopting more accommodative monetary stances. The ECB is clearly concerned about the Eurozone’s sluggish economy but, truth to tell, has little left in its interest rate locker. There could be a rate cut in September. The Fed’s recent rate cut was a modest 0.25%, though it is expected there will be further easing this year, despite the still relatively robust economy. The Bank, however, implies that, if a “smooth” Brexit, there could be rate rises, albeit “gradual and limited”. If no deal, they could go either way.”

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk
Follow Ruth on Twitter @RuthLeaEcon

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
arbuthnot@maitland.co.uk
Download full article

123456789 (2018)(2017)

Comment, at a glance

Public sector net borrowing surplus of £1.3bn in July 2019
21 August 2019

The public sector net borrowing (PSNB-ex, excluding public sector banks) surplus was a disappointing £1.3bn in July 2019, compared with a surplus of £3.6bn in July 2018 (figure 1, table 1). (July 2018 remains the highest July surplus since 2000.)

Central government receipts in July 2019 decreased by £0.4bn (or 0.5%) compared with July 2018, to £67.9bn, while total central government expenditure increased by £4.1bn (or 6.5%) to £67.6bn.

Income-related revenue increased by £0.8bn, with self-assessed Income Tax and National Insurance contributions increasing by £0.3bn and £0.5bn respectively compared with July 2018, but interest and dividend receipts were down £1.5bn. Accrued receipts of VAT increased by £0.3bn compared with July 2018, while Corporation Tax (CT) receipts fell by £0.1bn. Over the same period departmental expenditure on goods and services increased by £1.6bn, compared with July 2018, including a £0.7bn increase in expenditure on staff. Interest payments on the government’s outstanding debt decreased by £0.3bn compared with July 2018, largely resulting from movements in the Retail Prices Index (RPI) to which index-linked bonds are pegged.  

Borrowing in the current financial year-to-date (April-July 2019, FY2019) was £16.0bn, compared with £10.0bn in the same period last year (April-July 2018, FY2018). (The financial year-to-date April-July 2018 remains the lowest borrowing for that period since 2002.) Of the £16.0bn borrowed by the public sector in this period, £6.1bn related to the cost of the “day-to-day” activities of the public sector (the current budget deficit), while £9.9bn was capital spending (or net investment), such as on infrastructure. In March 2019, the OBR forecast that total borrowing would be £29.3bn for the full year FY2019.

The PSNB in FY2018 is estimated to be £23.6bn (1.1% of GDP), compared with £41.8bn in FY2017. It was the lowest financial year borrowing for 17 years.

Public Sector Net Debt (PSND) was £1,807.2bn at the end of July 2019 (82.4% of GDP), compared with £1,777.6bn (83.7% of GDP) at end-July 2018. The debt/GDP ratio is tending to fall.

The ONS announced, in December 2018, that they were changing the way they treat student tuition fee and maintenance loans in the government’s accounts. These changes will be implemented in September 2019. The ONS calculates that the change will add £12.0bn to the PSNB in FY2018. Allowing for other changes, the PSNB will be revised from £23.6bn to £36.9bn for FY2018, an increase of £13.3bn.

Read more
Retail sales rose 0.5% in 3 months to July
15 August 2019
Retail sales rose 0.5% (QOQ) in the three months to July to be a robust 3.2% higher (YOY) (table 1). The ONS commented that food stores and fuel stores saw a decline.

Retail sales rose 0.2% (MOM) in the month of July, to be 3.3% higher YOY, with strong growth (6.9%) in non-store retailing. A fall had been expected after June’s 0.9% (MOM) rise. The ONS commented that “…department stores’ growth increased for the first time this year with growth of 1.6% (MOM); this followed six consecutive months of decline”.

Online retailing rose to 19.9% of total retailing in July, compared with 18.9% in June.  

Read more
House prices inflation 0.9% in June
14 August 2019
 According to official data, UK average house prices inflation was 0.9% in the year to June 2019, unchanged from May’s revised data (Figure 1). The ONS commented “…over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England. The lowest annual growth was in London, where prices fell by 2.7% (YOY), less than the 3.1% fall in May 2019. Average house prices in London have now been falling over the year each month since March 2018”.

Prices rose 0.7% (MOM) non-seasonally adjusted, and rose 0.1% (MOM) seasonally adjusted, in June. 

The UK’s four countries continued to show different inflation rates in June: England (+0.7% YOY), Wales (+4.4% YOY), Scotland (+1.3% YOY) and Northern Ireland (+3.5% (2019Q2, YOY)).

In England, there was, as always, a significant range across the regions (figure 4). The complete list of annual price changes is: East Midlands (3.2%), West Midlands (2.6%), North West (2.4%), North East (1.8%), Yorkshire & Humberside (0.9%), East (0.7%), South West (-0.2%), South East (-0.6%), and London (-2.7%).

Read more
CPIH inflation rate 2.0%, CPI inflation rate 2.1% in July
14 August 2019

The CPIH inflation rate increased to 2.0% in July, compared with 1.9% in June. (CPIH is the Consumer Prices Index including owner-occupiers’ housing costs and is the ONS’s preferred measure of consumer prices inflation.) The ONS said “…there were large upward contributions to the change in the CPIH 12-month rate from games, toys and hobbies, and accommodation services, where prices for both rose by more than a year ago, and from clothing and footwear, and other financial services. There were offsetting downward contributions from transport services and, to a lesser extent, from domestic fuels principally electricity and gas.”

The inflation rates for goods and services in July were 1.7% (1.5% in June) and 2.2% (unchanged) respectively. The core rate inflation (excluding energy, food, alcoholic beverages & tobacco) increased to 1.9% (1.7% in June). The Consumer Prices Index (CPI) 12-month rate rose to 2.1%, compared with June’s 2.0%.

Turning to the producer price index (PPI), the inflation rate for the output PPI (goods leaving the factory gate) was 1.8% (YOY) in July (up from June’s 1.6%, table 1). The ONS reported that computer, electrical and optical products had provided the largest upward contribution to the annual rate of output inflation.

The inflation rate for the input PPI (materials and fuels used in the manufacturing process) rose to 1.3% (YOY) in July, compared with 0.3% in June (table 3). The ONS commented that fuels had provided the largest upward contribution to the annual rate of input inflation.

The annual rate of inflation for imported materials and fuels rose to 0.4% (YOY) in July (up from June’s minus 0.6%, table 4). Imported materials and fuels represent roughly two-thirds of overall materials and fuels (input prices) in terms of index weight. The sterling effective exchange rate index (ERI) depreciated 1.4% (MOM) in July, to be 2.6% lower YOY (table 4). Crude oil prices rose 1.8% (MOM) in July, but were 6.5% lower YOY (table 5). 

All in all, these reports suggest that prices inflation is fairly well contained.

Read more
Labour productivity (output per hour) slipped 0.2% (QOQ) in 2019Q2
13 August 2019

The ONS reported that the flash estimate of output per hour (their main measure of labour productivity, “productivity hours”) slipped 0.2% (QOQ) in 2019Q2, and was 0.6% lower (YOY). The YOY fall reflected a 1.8% rise in total hours worked more than offsetting the 1.2% rise in gross value added (GVA). GVA is a measure of the production of goods and services in the economy and is closely aligned to gross domestic product (GDP). The increase in total weekly hours worked was driven by growth in average actual weekly hours of work for both full-time and part-time workers, which increased by 0.6% (YOY) and 0.8% (YOY) respectively.

Output per worker also fell in 2019Q2, by 0.5% (QOQ), but was just 0.1% down YOY. The YOY slippage reflected total employment growing faster than GVA, at 1.3% and 1.2% respectively. The growth in employment was driven by both the numbers of employees and self-employed, which grew by 0.8% and 3.9% respectively.

Read more
Employment 32.81mn in the three months to June, a record high; total annual earnings growth was 3.7%
13 August 2019
Employment rose by 115,000 (QOQ) in the three months to June to 32.81mn, a record high, and was 425,000 higher than a year earlier (table 1 of the ONS’s labour market overview bulletin). This annual increase of 425,000 was mainly as a result of more people working full time (up 262,000 on the year to reach 24.11mn). Part-time working showed an increase of 162,000 on the year to reach 8.70mn.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 76.1%, the joint-highest on record since comparable records began in 1971. The employment rates for men and women were 80.1% and 72.1% respectively. The recent increase in the employment rate for women is partly due to ongoing changes to the State Pension age for women resulting in fewer women retiring between the ages of 60 and 65.

Unemployment was 1.33mn in the three months to June, 31,000 higher than the previous quarter but 33,000 down YOY (table 1). The unemployment rate (the proportion of the labour force that were unemployed) inched up to 3.9%, compared with 4.0% a year earlier. It has not been lower since December-February 1975. The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 20.7%, a joint-record low.

Job vacancies remain strong, though they have eased since the beginning of 2019. There were 820,000 job vacancies in the three months to July 2019 (sic), still at near-record levels since comparable records began in 2001. The number was down 20,000 (QOQ) and 20,000 lower (YOY).

Average weekly earnings for employees (GB) in nominal terms increased by 3.7% for total pay (including bonuses) and by 3.9% for regular pay (excluding bonuses) in the three months to June (table 2). These were the highest YOY increases since 2008Q2. Underlying earnings growth has picked up since mid-2017. The ONS said the latest estimates show that average weekly earnings for employees in GB in real terms (adjusted for price inflation) increased by 1.8% including bonuses and by 1.9% excluding bonuses, compared with a year earlier. The ONS added that “…two contributing factors were introduced in April that had a greater potential impact this reporting period: pay increases for some NHS staff, which affect public sector pay growth, and the introduction of the new National Living Wage rate (4.9% higher than the 2018 rate) and National Minimum Wage rates, which will impact the lowest-paid workers in sectors such as wholesaling, retailing, hotels and restaurants.”

All in all, this report suggests the labour market remains robust, though the unemployment rate has picked up a tad and the number of vacancies is easing.

Read more
Trade (goods & services) deficit narrowed in 2019Q2
9 August 2019
The total trade (goods & services) deficit narrowed by £16.0bn to £4.3bn in 2019Q2, largely due to falling imports of goods (table 1). Within the total:

·       The goods deficit fell by £16.6bn (QOQ) to £30.4bn in 2019Q2. Imports of goods fell 13.0%, with imports of unspecified goods (including non-monetary gold (NMG)), chemicals, and machinery and transport equipment decreasing following sharp rises in 2019Q1, ahead of the original Brexit day (29 March). Export of goods slipped 1.5% (QOQ).

·       Excluding unspecified goods (including NMG), the total trade deficit narrowed £6.2bn to £4.0bn in 2019Q2, as imports from EU countries fell following sharp rises in 2019Q1. This gives a more accurate assessment of the underlying state of the trade position.

·       Within goods, the deficit with EU countries narrowed by £4.7bn (QOQ) to £21.1bn and the deficit with non-EU countries narrowed by £11.9bn (QOQ) to £9.3bn (table 2).

·       The services surplus fell modestly (by £0.6bn) to £26.2bn. Exports were down 3.0% (QOQ), whilst imports were down 3.4% (QOQ).  

 

Removing the effect of inflation, the total trade deficit narrowed £17.2bn to £4.4bn in 2019Q2, acting as a boost to constant price GDP growth.

Read more
GDP was flat in June
9 August 2019

GDP was flat (MOM) in June, after a rise of 0.2% (revised down) in May, and was 1.0% (YOY) higher (table GVA3). Within GDP:

·       Services output was flat (MOM) in June for the fourth consecutive month. Growth of 0.8% in the professional, scientific and technical activities sector was offset by a fall of 1.4% in the administrative and support service activities sector.

·       Production contracted by 0.1% (MOM) in June 2019, following a rise of 1.2% (MOM) in May 2019. Within production, manufacturing contracted by 0.2% (MOM) in June, following a rise of 1.4% in May. This weakening in manufacturing comes despite the manufacture of transport equipment continuing its recovery. The main driver behind the weakness in manufacturing was the manufacture of basic metals and metal products, which fell by 2.8%.

·       Construction output contracted by 0.7% (MOM), after May’s 0.3% increase. The fall due to a 2.0% decline in repair and maintenance along with flat growth in new work.

The monthly growth rates for gross domestic product (GDP) are volatile and therefore should be used with caution and alongside other measures such as the three-month growth rate when looking for indicators of the longer-term trend of the economy. However, they are useful in highlighting one-off changes that can be masked by three-month growth rates.

 

 

Read more
GDP slipped 0.2% in 2019Q2
9 August 2019

GDP fell by a worse-than-expected 0.2% (QOQ) in 2019Q2, to be 1.2% higher (YOY), having grown by 0.5% in 2019Q1. The ONS commented that “…the path of GDP and some of its components has been particularly volatile through the year so far, largely reflecting changes in timing of activity related to the UK’s original planned exit date from the European Union in late-March (29 March)”. In particular, there was evidence that “…stockpiling was taking place in 2019Q1, which provided a boost to GDP, with the latest figures showing that these increased stock levels were partly run down in 2019Q2. Furthermore, it was also reported that a number of car manufacturers had brought forward their annual shutdowns to April as part of contingency planning”. 

Within the total, the industrial breakdown was:
·       Services output growth slowed to 0.1% (QOQ) in 2019Q2, after 0.4% growth in 2019Q1. The information and communication sector made the largest contribution to this growth in 2019Q2. The ONS commented that there “has been a loss of momentum in the services industry over the last year”. 
·       Production output contracted by 1.4% (QOQ) in 2019Q2 whilst manufacturing contracted by 2.3% (QOQ). Manufacturing had been fairly subdued through 2018 but picked up sharply in 2019Q1, growing by 1.9% (QOQ), which was “consistent with activity being brought forward ahead of the UK’s original intended EU departure date”. The fall in manufacturing output in 2019Q2 was also driven by a 5.2% decline in manufacturing output of transport equipment, which largely reflected the partial closures of various car manufacturing plants (summer shutdowns brought forward to April). Mining and quarrying output fell by 0.4% (QOQ), driven by scheduled maintenance in a number of oil and gas fields. In contrast, electricity, gas, steam and air conditioning as well as water supply and sewerage production grew by 2.5% and 1.0% respectively.
·       Construction output fell by 1.3% in 2019Q2, following an increase of 1.4% in 2019Q1. The quarterly fall was due primarily to a 6.0% decline in repair and maintenance work. However, public housing new work made a positive contribution. 

 

Turning to the expenditure components:
·       Household consumption growth was a resilient 0.5% (QOQ) in 2019Q2, compared with a rise of 0.6% in 2019Q1.
·       Government consumption increased by 0.7%, driven by increases in government spending in a number of sectors, including healthcare and spending by local authorities. Growth was 0.8% in 2019Q1.
·       Gross Fixed Capital Formation (GFCF) fell in 1.0% in 2019Q2, after rising by 1.2% in 2019Q1. The decline in the latest quarter mainly reflected a 2.7% fall in government investment.
·       Within GFCF, business investment slipped by 0.5% after a 0.4% increase in 2019Q1, which followed four consecutive quarters of decline throughout 2018.
·       There was a significant swing in inventories, from an increase of £5.7bn in 2019Q1, ahead of 29 March, to a decrease of £4.0bn in 2019Q2. This acted as a significant drag on growth.
·       There was also a significant swing in the trade balance (goods and services). In constant prices the deficit fell from £21.6bn in 2019Q1 to just £4.4bn in 2019Q2, an improvement of £17.2bn. Exports slipped by £5.1bn, but imports dropped £22.2bn. Imports in 2019Q1 had been swollen by high imports ahead of the original Brexit day (29 March). Specifically, there were high imports of “unspecified goods” (including non-monetary gold (NMG).
·       Note that trade in NMG has large and offsetting impacts on gross capital formation (GCF, where they are classified as “net acquisitions of valuables”) and net trade. These movements do not affect headline GDP as they are recorded as equivalent offsetting impacts in the UK National Accounts, but they are reflected in the composition of GDP growth. In 2019Q1 “net acquisitions of valuables” amounted to £11.0bn, falling to just £1.0bn in 2019Q2.

 

Read more
Markit Surveys for July improve on balance, but still weak
5 August 2019

The much-followed Markit/CIPS surveys suggested manufacturing and construction continued to contract in July, whilst services growth picked up modestly.

·       The Markit/CIPS manufacturing PMI was 48.0 in July, below the 50.0 no-change threshold, and unchanged from June. Demand was weaker in both domestic and overseas markets. The decline in new export business mainly reflected lower intakes from the EU and China. Manufacturers linked lower order intakes and production to ongoing uncertainties (political, global trade tensions and Brexit) and slower world economic growth. Companies also noted that some clients were routing supply chains away from the UK in advance of Brexit. (Data released on 1 August 2019.)

·       The Markit/CIPS construction PMI improved to 45.3, still below the 50.0 no-change threshold, compared with June’s 43.1. Commercial construction was the worst performing category in July, followed closely by civil engineering activity. Anecdotal evidence suggested that risk aversion among clients in response to Brexit uncertainty continued to hold back work on commercial projects. House building fell for the second month in a row during July, but the rate of decline was only modest and eased from the three-year record seen in June. (Data released on 2 August 2019.) 

·       The Markit/CIPS services PMI picked up to 51.4 in July, above the 50.0 no-change threshold, compared with June’s 50.2. Higher levels of business activity were driven by a solid rebound in new work during July. The rate of new business growth was the strongest since September 2018. There were again widespread reports that domestic political uncertainty had held back decision-making among clients, particularly large corporates. A number of survey respondents commented on improved sales to clients in external markets, helped by the weak sterling exchange rate against the euro and US dollar. Moreover, the latest survey indicated the fastest increase in new work from abroad since June 2018. (Data released on 5 August 2019.)

·       Markit commented that “…the latest PMI numbers are indicative of the economy stagnating at the start of the third quarter after indicating a 0.1% decline in the second quarter.”

Read more