UK PMI summary: Ongoing rebound in economic activity elevates the rate hike chances

Activity measured by the forward-looking PMI survey from IHS/Markit saw the activity in the UK picking up in June with the most import services sector rising to 55.1 in June compared to 54.0 expected by the market.

The services sector in the UK rebounded to the highest level since October last year in June following the pick up in manufacturing and construction PMIs.

The set of PMI reports for June confirms the Bank of England optimism stemming from the June monetary policy statement that saw ”number of indicators of household spending and sentiment bouncing back strongly from what appeared to be the erratic weakness in Q1, in part related to the adverse weather.” 

Despite the ongoing uncertainty surrounding Brexit, new orders in services are rising at the fastest rate in over a year.

The downside of the UK services PMI report is the capacity difficulties as business backlogs rose to an acute degree, not seen for around three years. 

In terms of other structural difficulties, even the minor uplift in hiring could alleviate the problem as salary pressures and the struggle to find skilled labor is causing the hesitate to increase staff numbers further. In combination with increased costs for fuel, the UK services sector is experiencing the sharpest cost inflation since September last year, as well as the confidence to pass on these additional costs to their clients to maintain their margins.

UK services PMI and Index of Services