In January, manufacturing PMI showed a marginal improvement, according to the first estimate. The headline index rose from 33.9 to 34.5 against the consensus estimate of 33.1. Looking at the details, the increase was driven by a rise in new orders (28.9 from 26.4) and new export orders (31.5 from 30.6). Output stayed broadly unchanged (31.4 from 31.2), while employment worsened (37.5 from 38.9). Both input and output prices dropped to a new historical low. Although the index improved somewhat, business confidence stays close to the record lows and labour market conditions even weakened. Also business confidence in the services sector improved somewhat. Services PMI rose from 42.1 to 42.5 in January. There was an improvement in new business (40.2 from 38.9); while outstanding business deteriorated (39.2 from 40.8). The employment situation stayed broadly unchanged (46.4 from 46.2), while price developments were mixed.
Other: UK Q4 GDP shows sharp contraction
In the UK, fourth quarter GDP contracted by 1.5% Q/Q, while the consensus expected a decline of 1.2% Q/Q. This is the second consecutive quarter of negative growth which indicates that the UK economy is now officially in recession. It’s the sharpest UK contraction since the recession of the 1980’s and BoE Governor King said the rate of contraction is likely to continue to be marked in the first half of this year.
In December, UK retail sales again surprised on the upside. On a monthly basis, retail sales rose by 1.6% M/M, while a drop of 0.7% M/M was forecasted. Looking at the details, food fell by -0.6% M/M, while non-food rose by 2.6% M/M. Also clothes (2.2% M/M) and household goods (4.5% M/M) showed a significant increase. The BoE Minutes already mentioned that consumption expenditure was holding up rather well, but that it might be due to aggressive prices discounting. This is confirmed by the implied deflator which dropped 2.6% Y/Y (from 0.2% Y/Y) in December.
