UK services PMI Preview: Activity set to decelerate as business outlook remains increasingly pessimistic

• While the UK manufacturing PMI accelerated to 53.8, construction PMI decelerated to a six-month low in September.
• The UK services PMI is expected to decelerate to 53.9 in September following the construction industry suit.
• The outlook weighs on the services activity in the UK with the business outlook for the year ahead at the lowest level since March in August report already.

While manufacturing activity accelerated in September to 53.8 and construction sector PMI fell to a six-month low of 52.1, the services sector PMI is set to follow the construction and to decelerate to 53.9 in September as well.

While the unexpectedly smooth and high progress of the English football team into the World Cup semifinals boosted the services activity during the summer months with people cheering the success with beers at pubs, the Brexit uncertainty and darker outlook for the business investment is holding the services activity back.

The services activity is essential for the broader picture of the UK economy. From the monetary policy view, the overall picture of the UK economy remained broadly unchanged with the Bank of England Monetary Policy Committee repeatedly emphasizing the element of Brexit uncertainty that weighs on the economic activity in the UK. 

“The MPC continues to recognize that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.  Since the Committee’s previous meeting, there have been indications, most prominently in the financial markets, of the greater uncertainty about future developments in the withdrawal process,” the Bank of England Monetary Policy Summary from September decision reads. 

With the UK manufacturing slowing down in September the third quarter activity will be on a softer side. Although services PMI do slightly better compare to the manufacturing, the slight downturn in the services sector is far from compensating the slump from late 2017, providing rather little hope for any meaningful boost to headline GDP growth through the year-so-far.

The UK services PMI and Index of Services