- A largely encouraging survey that maintains the recent more upbeat news on the UK economy. The “flash” February PMI shows UK services and manufacturing activity stable at the best rate since September 2018. While services activity lost a little momentum in February (but was still at its second highest level since September 2018) after sharp improvement in January, this was offset by manufacturing activity returning to growth and expanding at the fastest rate for 10 months.
- The survey indicates that the UK manufacturing and services sectors are continuing to benefit from an improved willingness by businesses to spend as a result of reduced uncertainties following December’s General Election.
- There was some moderation in overall new business growth from a 19-month high in January, as some slowing in the services sector outweighed a pick-up in manufacturing orders. However, output expectations rose to the highest since June 2015.
- It must be noted that the purchasing managers’ surveys can tend to overstate developments at times of significant changing political circumstances, so the survey could possibly exaggerate the improvement in activity after overplaying some of the weakness in the latter months of 2019.
- Nevertheless, the survey reinforces EY ITEM Club’s belief that the economy will likely achieve GDP growth of at least 0.3% quarter-on-quarter in the first quarter (and very possibly get up to 0.4% quarter-on-quarter), having stagnated in the fourth quarter of 2019.
- The Bank of England will likely see the February purchasing managers’ survey as further evidence that the economy is seeing improvement early on this year and consistent with its decision not to cut interest rates at its late-January meeting.
- However, a concern for the economy is that the upside for business investment may be limited by uncertainties over the UK-EU relationship – for example considering what will happen at end the end of 2020 and future regulatory divergence – 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.
Howard Archer, chief economic advisor to the EY ITEM Club, comments: “The “flash” purchasing managers’ survey for the UK manufacturing and services sectors indicated stable, decent expansion in February.
“There continues to be reports that a lift to activity had been provided by reduced political uncertainties following December’s decisive election and greater near-term clarity on Brexit with the UK leaving the EU on 31 January with a deal.
“Specifically, the composite output index for manufacturing and services was stable at 53.3 in February, which is the best level since September 2018. It had previously risen to 53.3 in January from 49.3 in both December and November (the lowest level since July 2016). It had been 50.0 in October.
“February’s reading of 53.3 was well above the 50.0 level that indicates flat activity.
“Employment rose for a third month running in February, albeit at a reduced rate.
Services PMI dipped but still at second highest rate since September 2018
“The “flash” purchasing managers survey pointed to the services sector growing at a modestly slower rate in February compared to January’s best performance for 16 months.
“Nevertheless, February’s reading was still the second highest reading since September 2018. This followed a flat performance in December and contraction in November.
“Specifically, the services PMI eased back to 53.3 in February after improving to a 16-month high of 53.9 in January from 50.0 in December and 49.3 in November.
“New business growth slowed from a 19-month high in January, as export orders fell – especially from Asia. However, domestic demand was reported to be improving.
“Optimism remained high in the services sector.
Manufacturing PMI at 10-month high and finally pointing to growth
“The “flash” purchasing managers survey encouragingly pointed to manufacturing activity returning to growth and expanding at the fastest rate for 10 months. It had previously stabilised in January following eight months of contraction.
“Specifically, the PMI rose to 51.9 in February from 50.0 in January and a four-month low of 47.5 in December.
“February’s reading of 51.9 took the PMI above the 50.0 level which indicates unchanged activity.
“Output rose at the fastest rate for 10 months.
“Encouragingly, new business in the manufacturing sector was the strongest since March 2019. Strong demand was reported from the US and Europe.”