Well, well, it is good news, and this time it really is.
The Purchasing Managers Indices from Markit/CIPS are perhaps the most meaningful of the forward indicators relating to the UK economy. This week has seen three of them, and they weren’t half bad either.
In fact, the composite index for May, that is the PMI which takes manufacturing, construction and services PMI and blends them together, hit its highest level since March 2012.
Let’s go through them in order. Just bear in mind that 50 is the key marker here, any score over it is meant to mark growth
First off the blocks was the manufacturing PMI. The May reading rose to 51.3, a 14 month high. Encouragingly, the sub index tracking new exports was also up with reports of higher demand from North America, East Asia, Russia, Germany and France.
Second was the PMI for construction. This was published yesterday. The index rose to 50.8 from 49.4, the first reading over 50 since October last year. Markit said, “Looking ahead over the next 12 months, around three times as many construction firms (40 per cent) anticipate a rise in output as those that forecast a reduction (13 per cent). This pointed to an improvement in business confidence since April.”
Thirdly, there was the PMI for services. This was up to 54.9, as was the case with manufacturing, a 14 month high. Especially encouraging was the sub index tracking new business growth. This points to the fastest rate of expansion since February 2010. Markit stated, “Panellists noted an increased willingness amongst clients to commit to new business. Sales have now risen for five successive survey periods.” Just in case you don’t think that is not enough good news, here is some more: May’s survey of the services sector indicated that input price inflation continued to weaken, falling for a third month running to the lowest level for a year.
The composite index rose from 52.1 to 54.3. You may recall the UK avoided a third dip recession recently by posting growth of 0.3 per cent in Q1. Markit reckons Q2 may see growth move up to half a per cent.
More to the point, across all three sectors new business showed the largest monthly increase for three years.
Then again, 0.5 per cent is not that special. The US is growing much faster, and for a country that has been contracting more often than it has been expanding for the last year or so, one might expect better.
Martin Beck, UK Economist at Capital Economics, said, “A question mark remains over how easy it will be to sustain growth in the face of significant headwinds. But evidence that the recovery may be establishing some momentum is becoming ever more convincing, as is the likelihood that the MPC will hold fire on more policy stimulus for the foreseeable future.”
Caxton FX Analyst, Richard Driver said, “Despite the uncertainty surrounding Carney’s takeover of the Bank of England, it’s hard to imagine a majority within the MPC will find it necessary to top-up quantitative easing with UK growth at these levels. Sterling will surely benefit from this latest development.”
© Investment & Business News 2013