Proactive Investors -
- FTSE 100 up 64 points at 7,294
- UK flash PMI data comes in lower than forecast
- Weak oil price holds back oil majors
Not as bad as made out?
The FTSE is back on the horse, riding higher as traders chew over what the PMI data all means.
Now we have a gain of 64 points for the blue-chip index, up 0.88% to 7335. Little sibling FTSE 250 is up almost 1% at 18,200.
Meanwhile, some economists are questioning whether flash PMIs are going to end up proving right about a major economic contraction, but implications for interest rates remains.
"In practice," the EY ITEM Club's Martin Beck said the club "doesn’t think the economy is quite as weak as the PMI suggests, although a continuation of the sluggish growth of recent quarters is likely for the near future".
But the softer activity and easing inflationary pressures "mean a rise in interest rates in September is no longer looking so certain".
The EY ITEM Club expects there will be a BoE rate rise next month but if so that it "will be the last in the current cycle".
While the PMI survey is consistent with GDP shrinking in the third quarter, Beck said the Club "thinks the outlook for the economy isn’t quite that weak".
"The PMIs exclude the public sector, where output should be supported by the resolution of some pay disputes."
Also he noted that evidence suggests that the PMI survey "can be influenced by the sentiment of respondents, as well as actual movements in output, a factor which may be at play this time, given a recent run of downbeat headlines about rising mortgage rates".
Inflation moderating as UK faces 'steep economic contraction'
Digging deeper into the S&P Global/CIPS flash UK PMI data, to use its full name, we find that the deterioration shown in the survey of UK private sector firms "mostly reflected a faster fall in new orders as sluggish domestic economic conditions and higher borrowing costs led to caution among clients".
Inflationary pressures continued to moderate in August, the survey showed, with input costs rising at the slowest pace for two-and-a-half years, leading to average prices charged by UK private sector companies increasing at the softest rate since early 2021.
Persistently strong wage pressures continue, backing up last week's ONS survey for June.
"The early PMI survey for August suggests that inflation should moderate further in the months ahead, but also indicates that the fight against inflation is carrying a heavy cost in terms of heightened recession risks," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
On Twitter he said the UK economy "has entered a significant downturn", and excluding pandemic lockdown months, "one of the steepest contractions since the global financial crisis", with the surveys signalling that UK GDP will decline by 0.2% over the third quarter so far and fall more steeply.
"A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector's spring revival."
Companies are reporting reduced orders for goods and services, which he attributes to the high cost of living, rising interest rates and concerns about the economic outlook.
"Although cost pressures remain elevated, thanks mainly to rising wages, the deteriorating demand environment is curbing companies' pricing power."
A fall in CPI to around 4% from the recent 6.8% is indicated by the survey, Williamson said, while a pull-back in hiring in August indicates that the labour market is "losing steam, which should feed through to lower wage pressures".
He speculated that another Bank of England hike in interest rates still looks "on the cards" for September but the PMI data "will add to speculation that rates could soon peak".
The initial spike in the Footsie has tailed off, with the index off its peak, up 46 points or 0.64% at 7316.
Meanwhile, the FTSE 250 is up 0.88% at 18,193.