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UK July flash services PMI 53.3 vs 53.0 expected

  • Prior 54.3
  • Manufacturing PMI 52.2 vs 52.0 expected
  • Prior 52.8
  • Composite PMI 52.8 vs 52.5 expected
  • Prior 53.7

The readings are slightly better than estimated but they are still weaker compared to June, reaffirming a further slowdown in the UK economy. The services and composite readings are at 17-month lows while the manufacturing reading is at a 25-month low.

Looking at the details, output growth slowed amid softer demand and capacity constraints arising from shortages of materials and staff. There is also some moderation in price pressures but they remain elevated as a whole. S&P Global notes that:

“UK economic growth slowed to a crawl in July, registering the slowest expansion since the lockdowns of early-2021. Although not yet in decline, with pent-up demand for vehicles and consumer-oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just 0.2% GDP growth. Forward-looking indicators suggest worse is to come. Manufacturing order books are now deteriorating for the first time in one and a half years as inflows of new work are insufficient to keep workforces busy, which is usually a precursor to output and jobs being cut in coming months. Raw material buying has already slumped and hiring has slowed as companies reassess their requirements for the coming months in the face of worsening demand conditions.

“The concern is that rising interest rates, as the Bank of England seeks to control inflation, will cause demand growth to weaken further in the coming months. To be hiking interest rates at a time of such weak business growth is unprecedented over the past quarter-century of survey history.

“On a brighter note, inflationary pressures have cooled markedly, stemming from fewer supply shortages and more discounting in response to the weakened demand environment. Companies’ costs are growing at the slowest rate since last September, which should help alleviate some of the upward pressures on  inflation  from energy and food in the coming months.”