Economics

Schroders Quickview: Flash UK PMI signals post-referendum slump


Azad Zangana

Azad Zangana

Senior European Economist and Strategist

See all articles

Markit has released a one-off set of surveys of its purchasing managers’ indices (PMIs), which suggest that both the manufacturing and the services sectors are now contracting – raising the probability of a recession in coming months.

The macro composite PMI fell from a balance of 52.4 to 47.7, well below the neutral mark of 50 and suggesting a contraction in economic activity. Compared to consensus estimates of 49.0, the result is worse than expected and represents the lowest reading in 87 months.

Within the details, the services PMI fell from 52.3 to 47.4 (88-month low), while the manufacturing PMI fell from 52.1 to 49.1 (41-month low). Both sectors saw a sharp fall in domestic orders, although international orders held up well. Both also signalled sub-50 readings on employment, suggesting job lay-offs to follow.

Interest rate cuts ahead

While this data only represents several weeks of information and there may be a rebound after the initial shock of Brexit, the scale of the decline in activity is alarming. A lack of reliable data on activity prevented the Bank of England from taking action at the last gathering of rate setters; however, this data will likely support the Bank in potentially cutting interest rates for the first time in over seven years on 4 August.

It should also support the government’s view that austerity needs to be put on hold as the economy weathers the economic Brexit storm.  

 

The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

 

This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

 

Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.

 

Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).

 

Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage.

 

Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799. For your security, communications may be taped or monitored

 

The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.