Election nerves drive UK business growth down to seven-month low
Newsflash: Britain’s service sector has been hit by a slowdown this month, as election anxiety hit the economy.
Data provider S&P Global reports that service sector growth hit a seven-month low this month, which also dragged growth across the private sector to its lowest since last November.
Service sector firms reported that the slowdown was partly driven by a pause in client spending decisions during the election period, after Rishi Sunak’s shock decision in late May to call a general election.
That suggests political uncertainty has dampened business spending this month.
In better news, manufacturers registered the sharpest rise in production levels for over two years, helped by a pick-up in new orders.
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
“Flash PMI survey data for June signal a slowing in the pace of economic growth, indicating that GDP is now growing at a sluggish quarterly rate of just over 0.1%.
The slowdown in part reflects uncertainty around the business environment in the lead up to the general election, with many firms seeing a hiatus in decision making pending clarity on various policies.
Here’s the key findings from June’s ‘flash’ survey of purchasing managers (a reading of 50 = stagnation).
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Flash UK PMI Composite Output Index at 51.7 (May: 53.0). 7-month low.
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Flash UK Services PMI Business Activity Index at 51.2 (May: 52.9). 7-month low.
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Flash UK Manufacturing Output Index at 54.2 (May: 53.4). 26-month high.
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Flash UK Manufacturing PMI at 51.4 (May: 51.2). 23-month high
This rather dampens the feel-good factor from early this morning, when retail sales jumped in May and consumer confidence rose.
In another worrying sign, inflationary pressures were back on the rise during June, as companies widely reported a steep increase in transport costs linked to global shipping bottlenecks.
And business optimism also fell this month.
The PMI report says:
The flash survey data pointed to a weaker level of business confidence regarding future output at UK companies in June, which qualitative evidence showed was fuelled by political uncertainty ahead of the general election.
Sentiment at services firms was especially affected, dropping to its lowest level for seven months.
Key events
Today’s UK PMI report also shows there was a slight increase in jobs among service providers this month, while goods producers trimmed their workforces.
The pound has dipped to its lowest level against the US dollar in over a month.
Sterling has lost a quarter of a cent today to $1.2630, adding to the half-a-cent drop recorded on Thursday.
Predictions that the Bank of England could cut interest rates as soon as August are weighing, after the BoE revealed that yesterday’s decision to hold rates was ‘finely balanced’ for some of its policymakers.
UK prices inflation picks up
The Bank of England won’t find much cheer in today’s UK PMI report.
The slowdown in the economy could put pressure on policymakers to consider cuts to interest rates – a decision they resisted yesterday, when Bank Rate was left at 5.25%.
But the PMI report shows that inflationary pressures are building up this month, with companies lifting their prices at the fastest rate in four months.
That seems to be driven by a rise in input costs, as “severe global shipping constraints led to higher transport costs”.
The report says:
The uptick in services charge inflation was the first recorded since February, with firms generally highlighting the need to cover their costs via increased selling prices. Factory gate prices rose solidly and to the greatest extent since May 2023.
Eurozone bond yields have dropped this morning, after the latest PMI data showed weak company growth in Germany in June, and a contraction in France’s private sector.
That may indicate that traders believe further cuts in eurozone interest rates are more likely, to support the economy.
Yields, which measure the rate of return on a bond, fall when prices rise.
Reuters has the details:
German 10-year bond yields, the benchmark for the euro area, fell 4.5 basis points to 2.38% and were set to end the week 2 bps higher.
The gap between French and German 10-year yields – a gauge of risk premium investors demand to hold French government bonds – was at 72 bps, after hitting 82.34 bps last Friday, its highest level since February 2017.
“OATs (French government bonds) look priced for a hung parliament/RN-lead with a benign fiscal outcome but might widen sharply to 100 bps over Bunds on a more forceful far-right/left manifesto implementation, while tightening to 60 bps on a centrist coalition,” Citi analysts said.
Meanwhile in Germany, business activity is only rising marginally this month.
The German economy has been hit by “a solid and accelerated drop in manufacturing production” this month, the latest PMI report shows.
The Germany Composite PMI Output Index has fallen to 50.6, a two-month low, down from May’s 52.4. That’s only just above stagnation….
French and German manufacturing PMI in contraction respectively since 17 and 24 months. Although we saw a bit of positive signs on services PMI lately, the macro environment remains very sluggish.
— arekusu_amaterasu (@arekusu9000) June 21, 2024
French economy weakens under election uncertainty
Election uncertainty also hit France’s economy this month, today’s PMI reports show.
France’s private sector economy endured a challenging month in June, S&P Global reports, with activity shrinking again in June.
The headline HCOB Flash France Composite PMI Output Index fell to 48.2 in June, from 48.9 in May, which shows a deeper contraction.
Today’s French PMI report shows:
Employment growth eased to a three-month low, while backlogs of work fell at an accelerated pace.
There was also a drop in business confidence, which reflected renewed concerns towards the outlook due to uncertainty arising from the upcoming election.
French PMI Flash June 2024
-French Comp Flash PMI Actual 48.2 (Forecast 49.4, Previous 48.9)
-French Services PMI Flash Actual 48.8 (Forecast 49.9, Previous 49.3) pic.twitter.com/olqJCEgYtA— Zain Vawda (@zvawda) June 21, 2024
June’s composite PMI report suggests the UK economic recovery lost a bit of momentum towards the end of the second quarter, reports Capital Economics.
They also point out that service sector prices have risen this month:
And after two stronger-than-expected inflation prints for April and May, the renewed pick-up in the services output balance will be a bit disappointing for the Bank of England.
This may not prevent an interest rate cut from 5.25% to 5.00% at the August meeting, but the risk is that rate cuts thereafter may be a bit more gradual than we currently expect.
Julian Jessop, economist at the Institute for Economic Affairs, points out that the UK private sector is still growing… and doing slightly better than the eurozone:
Less positively…
Flash #PMI suggests the UK economy lost a little momentum in June (output index fell from 53.0 to 51.7), which some respondents attributed to election uncertainty and renewed #inflation worries.
But 51.7 still consistent with decent growth, and the… pic.twitter.com/y9yxnPd6OC
— Julian Jessop FRSA (@julianHjessop) June 21, 2024
Overall, UK flash PMI a bit on the weak side. Manufacturing actually beat expectations and is now firmly in expansion territory, services still expanding but a good bit weaker than forecast
— John Stepek (@John_Stepek) June 21, 2024
Election nerves drive UK business growth down to seven-month low
Newsflash: Britain’s service sector has been hit by a slowdown this month, as election anxiety hit the economy.
Data provider S&P Global reports that service sector growth hit a seven-month low this month, which also dragged growth across the private sector to its lowest since last November.
Service sector firms reported that the slowdown was partly driven by a pause in client spending decisions during the election period, after Rishi Sunak’s shock decision in late May to call a general election.
That suggests political uncertainty has dampened business spending this month.
In better news, manufacturers registered the sharpest rise in production levels for over two years, helped by a pick-up in new orders.
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
“Flash PMI survey data for June signal a slowing in the pace of economic growth, indicating that GDP is now growing at a sluggish quarterly rate of just over 0.1%.
The slowdown in part reflects uncertainty around the business environment in the lead up to the general election, with many firms seeing a hiatus in decision making pending clarity on various policies.
Here’s the key findings from June’s ‘flash’ survey of purchasing managers (a reading of 50 = stagnation).
-
Flash UK PMI Composite Output Index at 51.7 (May: 53.0). 7-month low.
-
Flash UK Services PMI Business Activity Index at 51.2 (May: 52.9). 7-month low.
-
Flash UK Manufacturing Output Index at 54.2 (May: 53.4). 26-month high.
-
Flash UK Manufacturing PMI at 51.4 (May: 51.2). 23-month high
This rather dampens the feel-good factor from early this morning, when retail sales jumped in May and consumer confidence rose.
In another worrying sign, inflationary pressures were back on the rise during June, as companies widely reported a steep increase in transport costs linked to global shipping bottlenecks.
And business optimism also fell this month.
The PMI report says:
The flash survey data pointed to a weaker level of business confidence regarding future output at UK companies in June, which qualitative evidence showed was fuelled by political uncertainty ahead of the general election.
Sentiment at services firms was especially affected, dropping to its lowest level for seven months.
