- Another strong outturn for the services PMI in June was consistent with a significant rise in GDP in Q2. It also suggested the four-week delay to removing the remaining COVID-19 restrictions had little impact on the recovery
- The readings for input costs and selling prices both reached record highs. A period of above-target inflation looks likely, but the EY ITEM Club remains of the view that the pick-up will prove transitory
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“The services PMI came in at 62.4 in June, a little lower than May’s 24-year high but still signalling an exceptionally strong pace of activity growth. The slight deceleration is likely to reflect the fact there was no relaxation of COVID-19 restrictions in June. But equally, it is clear that the four-week delay to the full removal of restrictions has not thrown the recovery off track. Firms reported very strong growth in orders, which came exclusively from the domestic market, and a rapid pace of job creation.
“With the manufacturing survey also reporting a slight softening in output growth, the composite PMI edged down to 62.2. These results are consistent with the EY ITEM Club’s expectation that GDP grew by over 5% quarter-on-quarter in Q2.
“The other key theme of June’s survey was the escalation of inflationary pressures, with the balances for input costs and selling prices both reaching record highs. But there are good reasons to be cautious about these results. Business surveys only offer respondents the opportunity to indicate direction of travel, rather than a rate of change. And the IHS Markit/CIPS survey had reported rising inflationary pressures for several months before there was any pick-up in prices in the ONS data, suggesting a tendency to overstate price pressures. The EY ITEM Club thinks it likely that a period of above-target inflation will persist through the year, but this could well prove to be transitory.”