UK services PMI Preview: Services bundled with indices pointing to UK economic slowdown

Mario Blascak, PhD Independent Analyst

The UK services PMI is expected to recover to 53.0 after slumping down to 51.7 in March.
A streak of disappointing economic data in the UK of late weighs on Sterling.

The market consensus is expecting the UK services PMI to recover to 53.0 in April after falling sharply in March. In light of recent development, the market expectations might a bit optimistic with the manufacturing sector PMI disappointing in April with no excuses blaming the weather.

The recent streak of macroeconomic data coming below expectations weighed on Sterling, especially against the US Dollar with currency pair falling as much as 800 pips lower off it 20-month high of 1.4377 from April 17 and it will take a convincingly strong reading of the services PMI to stabilize the bearish trend.

The UK services PMI had been a very stable upward contributor to the economic growth with a reading of above 53.0 continuously above that level since October last year and the March deceleration to 51.7 being the lowest reading since July 2016 when the services activity was hit hard by the outcome of the Brexit referendum.

With the construction PMI falling below 50-mark indicating the economic contraction in the sector and the manufacturing missing the expectations in April, the UK economy is entering the second quarter with dark prospects for the GDP to recover from low first-quarter GDP growth of 0.1% Q/Q. Household consumption, the key element of the UK GDP, is still expected to weaken further this year with the balance of slight improvement in real, inflation-adjusted earnings and tightening conditions weighing on the downside.

With disappointing reading in the UK manufacturing sector, the UK GDP is unlikely to see any improvement in the near-stagnant performance signaled in first-quarter GDP growth.

The Index of Services published along with the UK GDP report last Friday also indicated underlying weakness in the UK services sector, rising 0.4% for the three months to February 2018, compared with the three months ending November 2017 and missing the expectations of 0.6% increase.

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Blaščák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

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