- July’s flash PMIs for the services and manufacturing sectors fell back on the previous month. But the EY ITEM Club says this is not yet a concern given the initial bounce in activity was always likely to fade as GDP moves closer to its pre-pandemic level.
- Meanwhile, July’s surveys generally reinforced expectations that inflation is headed higher. Growth in manufacturers input prices slowed from June’s record, but the same measure for services rose at the fastest pace since 1996.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“After the relaxation of COVID-19 restrictions triggered an improvement in the PMIs earlier this year, a fall back in June’s indices pointed to the initial impetus from reopening fading. This seems to have continued in July. The month’s flash services PMI dipped to 57.8 from June’s 62.4, while the manufacturing index of 60.4 was down from 63.9. Bringing the two surveys together, the composite PMI also notched up the second decline in a row, falling to a four-month low of 57.7 from 62.2.
“Following the rebound in the PMIs over the spring, the pace of growth indicated by the IHS Markit/CIPS surveys was always likely to slow as the initial bounce from the relaxation of restrictions faded – although it should be noted that the services survey was conducted largely before most remaining restrictions on social contact ended on 19 July. And the effect of rising COVID-19 infections, whether via their impact on confidence or disruption to activity, appears to have played a role in pushing down July’s indices.
“Meanwhile, July’s surveys largely reinforced evidence of strong inflationary impulses in the economy, albeit with some tentative signs that the peak could be passing. On the services side, input prices rose at the fastest pace since the index began in July 1996. Growth in manufacturers’ factory gate prices was also a record. But rises in the cost of inputs faced by ‘the makers’ eased from June’s record pace.”