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- UK economic activity slows in July - S&P
Slowing UK economy boost case for more modest rate increase
Samuel Tombs at Pantheon Macroeconomics thinks the PMI figures from S&P "strengthens the case for the MPC to revert to raising Bank Rate by 25bp at next month’s meeting, rather than unleash another 50bp hike."
"The increase in interest rates delivered to date appears to be increasingly slowing the economy," he said.
He noted the drop in the composite orders index to 50.0, from 51.6 in June, suggests that the trend will not improve soon.
"Current business volumes also were supported by firms depleting work backlogs at the fastest pace since June 2020, hinting that the composite PMI might drop below 50 over the coming months once these backlogs have been depleted," he forecast.
But he thinks while a case could be made for a Fed-style pause next month, "the committee likely will not want to take any risks with the inflation outlook and will press on and raise Bank Rate by 25bp, to 5.25%, next month."
"The risks to our forecast that 5.50% will be the peak for Bank Rate, however, no longer look skewed to the upside," he added.
Martin Beck, chief economic advisor to the EY ITEM Club agreed.
"On balance, the EY ITEM Club still expects the MPC to tighten policy further at its meeting next week, but the case for further tightening is getting weaker” he commented.
Simon Harvey, head of FX analysis at Monex Europe said: "All in all, today’s data once again confirms that the effects of the BoE’s tightening cycle are now starting to have an impact on the real economy, and with services activity cooling specifically, this should provide further justification for the BoE to decelerate its hiking cycle with a 25bp hike in August."
UK economic activity slows in July - S&P
UK economic activity slowed sharply in July as rising interest rates and a slump in manufacturing took its toll.
The flash UK PMI services output index, a measure of activity in the sector, fell to a six-month low of 51.3, down from 53.7 in June while the manufacturing output index hit a seven-month low of 46.5 (down from 48.1 in June).
This brought the composite index, which combines the two sectors, to a seven-month low of 50.7, down from 52.8 in June.
July #flash PMI data highlighted a considerable slowdown in growth across the #UK's private #economy, largely due to flatlining new orders. #PMI at a 6-month low of 50.7 (June: 52.8). Read more: https://t.co/1MF9kfgXRZ @cipsnews pic.twitter.com/wm0MDfJDeD— S&P Global PMI™ (@SPGlobalPMI) July 24, 2023
Chris Williamson, chief business economist at S&P Global Market Intelligence, which publishes the index, said the data showed the UK economy had “come close to stalling”.
"Rising interest rates and the higher cost of living appear to be taking an increased toll on households, dampening a post-pandemic rebound in spending on leisure activities."
“Forward-looking indicators, such as order book inflows, levels of work-in-hand and future business expectations, all point to growth weakening further in the months ahead, adding to a risk of GDP falling in the third quarter," he added.