Press release

21 Apr 2023

April's PMIs make a May rate rise more likely - EY ITEM Club comments

Martin Beck, Chief Economic Advisor to the EY ITEM Club, provides analysis on the UK’s latest flash services and manufacturing PMIs.

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Related topics Growth
  • The flash composite Purchasing Managers’ Index (PMI) rose to a 12-month high in April, adding to the evidence that the UK economy may have turned a corner. Still, the EY ITEM Club thinks the economy may struggle to grow in Q2 because of the impact of strikes in the health sector and May's extra bank holiday.

  • April’s survey reported a surprise acceleration in output prices and further evidence of strong wage growth. Following this week's upside surprises in the official data for earnings and inflation, another 25bps rate rise in May is now looking more likely.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The flash S&P Global/CIPS survey for April reported a composite PMI of 53.9, a big step up on March's balance of 52.2 and the highest reading for 12 months. Once again, the sectoral breakdown reported a big gap between strong growth in services activity (54.9) and contracting manufacturing activity (46.6). Indeed, manufacturers reported weaker balances than March for both the PMI and output.

“The EY ITEM Club thinks Q1 probably delivered quarter-on-quarter GDP growth of around 0.1%. But while the flash PMIs suggest that Q2 got off to a strong start, two factors the surveys won't capture mean that GDP is likely to come in somewhat softer than the PMIs imply. First, the impact of ongoing industrial action, which will exert a sizeable impact on public sector output in April, and possibly also subsequent months. And second, the extra bank holiday in May, which recent experience suggests will cause a large, temporary, fall in output in some sectors. As a result, the EY ITEM Club thinks there's still a chance that GDP will fall slightly in Q2. 

“The pace of input cost inflation in April’s survey was the slowest in more than two years. But other indicators of relevance to the MPC's next interest rate decision moved in a uniformly hawkish direction. Respondents reported strong wage growth, the pace of job creation picked up, and there was a surprise rise in the balance for prices charged. Coming on the back of this week's upside surprises in the official data for wage growth and inflation, it looks increasingly likely that the MPC will opt to raise interest rates again at the May meeting.”