Press release

23 May 2023 London, GB

May's PMIs provide mixed messages for the MPC – EY ITEM Club comments

May's composite Purchasing Managers’ Indices (PMIs) reported a fourth successive monthly rise in activity, although the pace of growth slowed. Given the impact of ongoing industrial action and May's extra bank holiday, Q2 GDP may come in softer than the PMIs imply, falling modestly quarter-on-quarter.

Press contact
James White
James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

email LinkedIn
Related topics Growth
  • May's composite Purchasing Managers’ Indices (PMIs) reported a fourth successive monthly rise in activity, although the pace of growth slowed. Given the impact of ongoing industrial action and May's extra bank holiday, Q2 GDP may come in softer than the PMIs imply, falling modestly quarter-on-quarter.
  • Messages on the inflation outlook were mixed. While manufacturers are experiencing rapidly falling costs, businesses in the services sector reported strong wage growth. If this is mirrored in the official labour market data, it could cause the MPC to increase rates again.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The flash S&P Global/CIPS survey for May reported a composite PMI of 53.9, a step down on April's balance of 54.9, but still comfortably in expansionary territory for the fourth consecutive month. While the gap in sectoral performance remained significant, the slowdown in economic activity was driven by falls in both the services (55.1 from 55.9) and manufacturing (46.9 from 47.8) PMIs. The former was attributed to budget pressures among corporate clients, while manufacturers reported subdued order books and customer destocking.

“Although recent PMI readings imply a strong pace of growth in Q2, GDP may come in softer than the PMIs imply. The EY ITEM Club expects GDP to have temporarily fallen in May because of the extra bank holiday, a calendar effect that business surveys often struggle to pick up. Meanwhile the impact of ongoing industrial action is likely to weigh on public sector activity. Therefore, a small quarter-on-quarter fall in Q2 GDP appears likely.

“May's survey offered mixed messages on the inflation front. Manufacturers reported the fastest decline in input costs for seven years, owing to a fall in energy bills. But service sector businesses reported the fastest growth in input costs for three months, reflecting strong wage pressures. If this evidence of stronger wage pressures is mirrored in the official labour market data, then the MPC could judge that it's consistent with its criteria for raising rates again. For now, attention moves to tomorrow's inflation data, which is probably the most important data release before the June MPC meeting.”