UK services PMI Preview: Activity set to decelerate slightly disregarding English football squad unexpected progress in the World Cup

While manufacturing activity decelerated in July to 54.0 and construction jumped unexpectedly strongly to 55.8 in July, the services sector PMI is set to follow the manufacturing and to decelerate to 54.7 in July as well.

While the unexpectedly smooth and high progress of the English football team into the World Cup semifinals might seem to have boosted the activity with people cheering the success with beers at pubs, the example of the UK retail sales for June indicates that the cheerful mood might not be enough to lift the economic indicators.

The activity in services is the key to the broader picture of the UK economy. From the monetary policy view, the overall picture of the UK economy remained broadly unchanged from May with the Bank of England August Inflation Report confirming that the dip in output in the first quarter was temporary, with momentum recovering in the second quarter. 

The Bank of England is currently expecting the UK GDP to grow by around 1.7% per year on average over the forecast period from 2018-2020 with global demand growing above its estimated potential rate and financial conditions remaining accommodative, although both are somewhat less supportive of UK activity over the forecast period.

With the UK manufacturing slowing down in July and starting the third quarter on a softer side with rates of expansion in output and new orders losing steam, the services are set to follow the suit. Although services PMI do slightly better compared to manufacturing, the slight upturn 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.