UK Business Downturn Improves as Inflation Data and BoE Pause Impact - PMI

06 Oct, 2023

UK Business Downturn Improves as Inflation Data and BoE Pause Impact - PMI

UK service companies experienced a milder downturn in September than initially anticipated, influenced by an unexpected decrease in inflation and the Bank of England's decision to keep interest rates stable, according to a business survey released on Wednesday.

The final reading of the S&P Global UK Services Purchasing Managers' Index (PMI) dropped to 49.3 in September from August's 49.5, slipping further below the growth threshold of 50. Although it marked an eight-month low, it fared much better than the preliminary "flash" reading of 47.2, which surprised investors and might have influenced the Bank of England officials, the majority of whom voted to maintain interest rates last month.

The final PMI survey covered responses from companies surveyed between September 20 and September 27, occurring after data revealed an unexpected decline in British inflation in August, as well as the Bank of England's surprising interest rate decision on September 21.

Tim Moore, the economics director at data firm S&P Global Market Intelligence, noted that the services sector was still in negative territory but pointed out that some companies were becoming more optimistic about the reduction in price pressures.

"Moore explained that the positive sentiment was linked to expectations of continued relief from inflationary pressures, a rebound in consumer demand, upcoming product launches, and corporate investment strategies. Nevertheless, survey participants did express concerns about high borrowing costs and stretched household budgets."

The employment gauge in the services PMI fell to its lowest level since January 2021. Outside of the COVID-19 pandemic, it was the weakest reading since 2010. Moore observed that there was evidence that some firms chose not to replace departing employees due to significant wage pressures.

The PMI's measures of cost pressures and selling prices eased to their lowest levels since April 2021.

The composite PMI, which combines the manufacturing survey from Monday with the services PMI, slipped to 48.5 in September from August's 48.6, revised up from the initial flash reading of 46.8.