Press release

5 Jan 2023 London, GB

December's PMI suggests GDP likely fell in Q4 2022 – EY ITEM Club comments

Martin Beck, Chief Economic Advisor to EY ITEM Club, provides comments on the latest public finance news.

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  • December's S&P Global/CIPS survey reported that UK business activity fell as squeezed household and corporate budgets fed through into weaker demand. However, the speed of the contraction slowed compared to November, with the manufacturing sector continuing to underperform relative to the service sector.
  • Responses to the services survey pointed to easing labour demand, while cost and price pressures also cooled. This is consistent with the EY ITEM Club’s view that the Monetary Policy Committee (MPC) will stop the cycle of raising interest rates imminently, with the Bank Rate expected to peak at around 4%.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “December's S&P Global/CIPS survey reported a rise in the composite PMI to 49.0, from 48.2 in November. Though this represented the fifth successive sub-50 contractionary reading, the pace of contraction slowed slightly. December's rise in the composite measure was entirely driven by a pickup in the services PMI, which rose to 49.9 from 48.8 in November. 

“Despite the slight uptick in the services PMI, businesses continue to operate in a difficult economic environment. New orders fell again in December as falling real incomes and high energy prices continued to squeeze household and corporate budgets. This survey adds to the evidence that UK GDP likely fell in Q4 2022, and the EY ITEM Club expects activity to continue to decline in the first half of 2023.

“Though remaining above historical norms, survey responses pointed to an easing in costs and price pressures, while labour demand showed signs of weakening. Given the Bank of England's recent rate raising cycle has been largely in response to concerns that persistent domestic inflation and a tight jobs market could create conditions for high inflation to become embedded, the results are consistent with the EY ITEM Club’s view that we are getting close to where the Monetary Policy Committee will feel it can press pause on rate increases. The EY ITEM Club expects Bank Rate to peak at 4%.”