May 28, 2024
S&P Global Flash United Kingdom PMI®
Revival in manufacturing production supports output growth in May
UK private sector activity registered a solid expansion in May as a resurgence in manufacturing production supplemented a further, albeit slower, upturn in services output. Business activity growth was again accompanied by a rise in new order volumes and an uptick in export sales, but ongoing hiring challenges meant that the rate of job creation remained only marginal.
At the same time, UK businesses reported the softest increase in average selling prices for over three years in May, partly linked to a slowdown in input cost inflation after April’s steep rise. Survey respondents highlighted a softening of labour cost pressures following the increase in the National Living Wage, with services firms especially seeing a drop in input price inflation.
At 52.8 in May, down from 54.1 in April, the headline seasonally adjusted S&P Global Flash UK PMI Composite Output Index signalled a solid increase in private sector activity, albeit one that was less marked than April’s one-year high.
Supporting the expansion was a strong rebound in manufacturing production in May. The upturn was the second recorded in three months after a prolonged spell of decline, with the latest data marking the fastest rate of growth since April 2022. Higher output was often linked to stronger client demand and emerging signs of a recovery in both export sales and inventory purchases.
Manufacturers joined service providers in growth territory as the latter experienced a further increase in activity amid reports of rising business and consumer spending. Although solid overall, the pace of growth eased to the softest seen for six months, as some firms highlighted cost-of-living pressures and greater economic uncertainty.
New business volumes across the private sector rose for the sixth consecutive month in May. However, the rate of growth slowed to its weakest in the year-to-date and was relatively modest. Notably, services and manufacturing recorded equally moderate uplifts in new orders, ending a period of divergent trends between the two sectors. The rise in new business was helped by a second successive increase in export orders, after April marked the first expansion in almost a year. Although the upturn was again concentrated on the services side, some manufacturers noted a stabilisation of new orders from European and other foreign markets.
Despite sustained output growth, the flash survey results continued to signal a relatively subdued labour market in May. Although employment levels picked for the fifth straight month, they did so at a marginal rate and to a lesser extent than that of new business. Some firms continued to signal delays with hiring staff due to candidate shortages and cost considerations. That said, a pick-up in manufacturing orders supported labour demand at some units, leading to the softest drop in headcounts across the sector for 20 months.
May survey data provided signs of a slowdown in inflationary pressures at private sector companies. Input price inflation dropped to its lowest level in seven months, reflecting softer rises in input costs across both sectors. Service providers experienced their weakest cost pressures in over three years, which partly reflected a reduced impact from the higher National Living Wage that was introduced in April. That said, the uplift in input prices remained much faster than for manufacturing companies.
Amid the softer rise in input costs, private sector firms increased their selling prices to a weaker extent for the third month running in May, leading prices charged inflation to fall to its lowest level since February 2021. The cooldown was solely driven by the service sector, where some panellists indicated greater efforts to stimulate new work intakes amid competitive pressures. In contrast, goods producers raised their factory gate prices at the sharpest rate in a year, which firms mainly attributed to the pass-through of higher salary payments and material prices to clients.
Business activity forecasts for the next 12 months remained strong in May, though there were differing trends across the two main sectors. The degree of optimism among manufacturing firms soared to the highest level since February 2022, as rising customer orders supported greater confidence towards market conditions and business expansion plans. At the same time, optimism among services companies dipped to a four-month low, as robust confidence towards new business pipelines and customer spending was slightly offset by reports of uncertainty surrounding future interest rate decisions and the upcoming general election.
Source: S&P Global Flash United Kingdom PMI®
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