U.K. lower service PMI in line with expected moderation in GDP growth

U.K. August PMI data came in softer than expected, with manufacturing declining to 51.5 after printing 51.9 in July, and services dipping by 1.8 points to 55.6, its lowest in over two years. Despite a small rebound in August, the pace of job creation in the service sector was the second weakest since March 2014. Business activity, new business and business expectations have now fallen to just one standard deviation above their long-term average. 

In the manufacturing sector, the headline index as well as components are already at or below their long-term averages, highlighting the current difficulties of the sector in the face of a structural lack of competitiveness and an appreciating currency. Construction was the only bright spot, rising (+0.1 point) to 57.3 despite lower business expectations. 

The downward surprise points to continued moderation and underscores the more cautious macro view that economic activity is set to abate over the coming months, with GDP growth easing to around 0.5% q/q in Q3 and Q4. 

"Next week, industrial production is likely to drift lower again, driven by manufacturing posting the first negative % y/y growth rate since august estimation also indicates a -0.4% q/q carry over into Q3, the weakest since Q4 12. This would be a further illustration of the slowdown already visible in business surveys, and the potential for a lower GDP growth rate in H2", says Barclays in a research note to its client.