We now have as complete a picture for the UK economy in October as we are going to get for some time. And it’s good.
The latest purchasing managers index (PMI) tracking services, called the PMI Business Activity Index, rose to 54.5 in October, from 52.6 the month before. It points to the fastest rate of expansion in the sector since January.
It’s good news to follow good news.
The PMI tracking construction, out yesterday, rose from 52.3 to 52.6, the highest reading since March, although the PMI tracking manufacturing, released Tuesday, fell a tad from 55.5 in September to 54.3.
But the point is, any score over 50 is consistent with growth, and all three PMIs point to that. In fact, together, they point to a quarterly growth rate of around 0.5%, not bad, although it is hardly brilliant.
Chris Williamson, chief business economist at HIS Markit, which compiled the survey said: "What’s especially reassuring is that growth is also becoming more balanced. Manufacturing is leading the expansion as exporters benefit from the weaker pound, but services growth is also reviving and construction is being boosted by renewed house building.”
On the other hand, while the falling pound has helped exporters, it is having a negative effect too, with the three surveys also pointing to surging cost pressures. Markit said: “Input price inflation surged to the highest since March 2011, with a survey-record month-on-month acceleration.”
David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply warned that “the exchange rate on the pound continued to be a blessing and a curse, as opportunities for more export-related activity such as tourism improved. On the other hand,” he continued “input price inflation accelerated to a level not seen since March 2011 as healthy margins were challenged. Higher food and fuel prices were highlighted.”
Meanwhile, Samuel Tombs, chief UK economist, at Pantheon Macroeconomics cautioned that “with input and output prices in the services sector now rising at the fastest rates since March and April 2011 respectively” that he doubted “activity will continue to grow at recent solid rates.” He added: “In addition, the PMIs might soon begin to overstate growth, as they exclude the retail sector which will bear the brunt of the surge in import prices.”
Ruth Gregory, UK economist at Capital Economics, suggested that we may "see a further weakening in growth ahead given that slower employment growth and real wages could dampen household spending growth and uncertainty may weigh on investment.”
But, on a more encouraging note, she said: “We don’t think that the rise in inflation will be too stark by past standards and supportive policy, such as rock bottom interest rates and a relaxation of the planned pace of fiscal tightening in the forthcoming Autumn Statement, should ensure that any slowdown is not too severe. As such, we think that GDP growth will only moderate from around 2.0% this year to about 1.5% in 2017.”