The ‘flash’ estimates of the U.K. PMIs indicated a sharp fall in business sentiment in November, painting a soft picture of health for the U.K. economy in the fourth quarter. The manufacturing headline balance fell to 48.3 in November from 49.6, reversing the rise recorded in October and ensuring that it remained below the key 50 mark for a seventh consecutive month.
Out of the 1.3 percentage point decline, more than half of the move was because of a sharp reversal in stocks of raw materials. This had usually been expected, given that companies had reportedly built up stocks ahead of the 31st October Brexit deadline. Nevertheless, a fall here was also accompanied by falls in output and employment.
While the flow of new orders rose a bit, it is still at a level in line with falls. Moreover, with companies continuing to work through their backlogs, the prospects for manufacturing activity still rests heavily on a stabilization in new orders – either through less uncertainty around the U.K.’s domestic outlook and/or a more durable recovery in global trade trends.
The fall in the services PMI, meanwhile, was especially disappointing, falling to 48.6 from October’s 50 – its weakest outturn since July 2016. IHS Markit showed that the service sector firms attributed the fall in activity to ongoing domestic political uncertainty. Accordingly, the flow of new business fell further below the 50 mark to 47.3.
With both the manufacturing and services readings registering sub-50 outturns, IHS Markit implied that this was in line with a quarterly fall of 0.2 percent in U.K. GDP in the fourth quarter.
“However, as we have highlighted previously, the PMIs have been a poor guide to trends in the official data in recent quarters and should be interpreted with care. Nevertheless, the overall subdued nature of the PMIs across October is a reminder of the drag that persistent uncertainty (both domestic and global) can have on the economy”, said Lloyds Bank in a research report.
