Press release

24 Jan 2020 London, GB

Purchasing managers report marked pick-up in UK services and manufacturing activity in January

An encouraging survey, not just in terms of showing a marked pick-up in UK services and manufacturing activity to a 16-month high in January, but also the forward-looking indicators boding well for future activity.

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  • An encouraging survey, not just in terms of showing a marked pick-up in UK services and manufacturing activity to a 16-month high in January, but also the forward-looking indicators boding well for future activity. The “flash” purchasing managers’ survey for the UK manufacturing and services sectors indicates that the economy has gained significant initial benefit from reduced uncertainties following December’s decisive election result (and likely clarity on the UK leaving the EU with a deal at the end of January). 
  • There were widespread reports of a positive impact from reduced political uncertainties on businesses and consumers’ spending decisions.
  • It must be noted that the purchasing managers’ surveys can tend to overstate developments at times of significant changing political circumstances, so the flash survey could possibly exaggerate the rebound in January after overplaying some of the earlier weakness.
  • Nevertheless, the survey should be reassuring for the Bank of England and seemingly dilutes the case for an interest rate cut on 30 January. Along with evidence of improving business and consumer confidence, and a robust labour market report for November, we believe the January purchasing managers’ survey warrants the Bank of England remaining in “wait and see” mode at their January meeting. Fiscal stimulus on the way adds to the case for Bank of England inaction.
  • The composite output index for services and manufacturing climbed to a 16-month high of 52.4 in January from 49.3 in both December and November, indicating clear expansion after five months of flat or contracting activity
  • The forward-looking indicators of the survey bode well for future activity. Overall new orders grew at the fastest rate since September 2018. Confidence improved to the highest level since July 2015. Employment increased.
  • January’s pick-up in activity was most evident in the services sector, which built on signs from the final December survey that the sector had got a lift from the decisive election result. Services activity rose to a 16-month high in January. Increasing new business, higher employment and healthier confidence were further positives.
  • The manufacturing sector was on the brink of stabilisation in January after extended contraction.
  • The survey reinforces our belief that the economy could well see GDP growth of 0.4% quarter-on-quarter in the first quarter of 2020 after likely stagnating at best in the fourth quarter of 2019.
  • However, a concern for the economy is that the upside for business willingness to commit to investment and major projects may be limited by still significant concerns and uncertainties over the UK-EU relationship, along with a challenging global environment.
  • This may make it difficult for the economy to kick on after a likely pick-up in the early months of 2020.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“The “flash” purchasing managers’ survey for the UK manufacturing and services sectors indicated a marked pick-up in activity in January. This came amid reports that a lift had been provided by reduced political uncertainties following December’s decisive General Election and greater near-term clarity on Brexit with the UK poised to leave the EU on 31 January with a deal.

“Indeed, it showed overall manufacturing and services output growing at the fastest rate for 16 months after five months of contracting or flat activity.

“Specifically, the composite output index for manufacturing and services rose to 52.4 in January from 49.3 in both December and November (the lowest level since July 2016). It had been 50.0 in October.

“January’s reading of 52.4 was well above the 50.0 level that indicates flat activity.

“The forward-looking indicators bode well for the future. Joint orders were reported to have risen in January after five months of contraction and at the fastest rate since September 2018. There were widespread reports of a positive impact from reduced political uncertainties on businesses and consumers’ spending decisions.

“Output expectations rose to the highest since June 2015.

“Employment rose with marginal increases reported in both the services and manufacturing sector.

“It must be considered that the purchasing managers’ surveys can tend to overstate developments at times of significant changing political circumstances, so the flash survey could possibly exaggerate the rebound in January after overplaying some of the earlier weakness.

Services PMI at 16-month high

“The “flash” purchasing managers survey pointed to the services sector growing in January at the fastest rate for 16 months, having been flat in December. And contracted in November. Specifically, the services PMI jumped rose to 52.9 in January from 50.0 in December and 49.3 in November.

“New business also expanded at the fastest rate for 16 months. There were reports of delayed orders going ahead following the decisive General Election result. However, overseas business was reported soft.

“Confidence in future activity was the highest since March 2015.

“Employment grew slightly.

Manufacturing PMI at nine-month high and on brink of stabilisation

“The “flash” purchasing managers survey pointed to manufacturing activity contracting for a ninth month running in January. However, the rate of decline was marginal and the slowest for nine months.

“Specifically, the PMI climbed to 49.8 in January after dipping to a four-month low of 47.5 in December, from 48.9 in November and a six-month high of 49.6 in October (when it had been boosted by stockbuilding and sales ahead of the scheduled 31 October date for the UK to leave the EU). January’s reading of 49.8 took the PMI very close to the 50.0 level which indicates unchanged activity.

“Encouragingly, new business in the manufacturing sector rose modestly in January after contracting over the previous eight months.

“Employment rose slightly.

“There was a sharp fall in stocks of purchase.”