Although the private sector grew faster than originally estimated, domestic spending “stopped up” after the election as people delayed their purchases.
The composite purchasing manager’s index, compiled jointly by S&P Global & the Chartered Institute of Procurement & Supply (CIPPS), fell to 52.3 from 53 the month before. The closely watched survey’s reading was below the 50-point threshold separating growth and contraction.
The measure was down from the previous month but revised higher from an initial estimate of 51,7, meaning the pace of private sector activity accelerated more quickly than first estimated.
The growth in output was primarily driven by service businesses. They benefited from a surge of new orders, amid falling inflation rates and the hope that the Bank of England would cut interest rates over the summer. Exports to North America, Europe and Australia performed well.
The PMI for services dropped to 52.1 from 52.9 in may, but this was also upgraded from an initial reading of 51.2. Manufacturing survey was behind, at 50.9 in July. This is down from 51.2.
Experts said that despite the improvement in private sector growth, the economy was still constrained by the political uncertainty created by the general elections on Thursday, where Labour is expected win an historic majority.
Joe Hayes is the principal economist of S&P Global Market Intelligence. He said that the UK services sector was experiencing a “seize-up” before the general election. The growth of business activity in June fell to its lowest level in seven months as some businesses adopted a “wait-and-see” approach, which slowed sales.
The economic landscape will likely be less volatile after the vote than it was in the last four years when Britain experienced a series shocks. The Office for National Statistics increased its estimate of first-quarter growth to 0.7% from 0.67% and several City analysts raised their forecasts for growth in 2024.
The Bank has achieved its official target of 2 percent for the first since July 2021. The financial markets expect the central bank to reduce interest rates from its 16-year high rate of 5.25 percent at its next policy session on August 1.
There is still a possibility that the Bank may delay its first rate reduction since March 2020 to September due to persistent inflationary pressures on the services sector, caused by higher wages, shipping costs, and raw material prices.
The PMI report stated that “prices charged increased slightly faster in June.” The rate of inflation increased slightly from the 37-month low in May and was significantly stronger than average since 1996.
The composite PMI for the eurozone fell to 50.9 from 52.2 in June, a three month low. Germany registered a composite reading 50.4, while France recorded 48.8, indicating that the private sector contracted in France last month.
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