The UK manufacturing sector grew at its slowest rate in two years in August, according to a survey by IHS Markit. The monthly report gave an index reading of 52.8 in August compared to 53.8 in July, below analysts’ expectations. The result was blamed on a slowdown in global growth which has hit export orders. The reasoning chimed with other surveys released on the same day that showed a slowdown in manufacturing activity in Europe and Asia – most likely linked to concerns about the ongoing trade disputes between the US and China, in addition to Brexit.
Bad news also emerged from the high street on Tuesday as retail sales growth slowed in August, according to the British Retail Consortium (BRC). It said total sales were up by 1.3% on an annual basis in August, compared to a growth rate of 1.6% in July. One year ago, in August 2017, retail sales growth was running at 2.4% a year, illustrating the extent of the slump.
Pressure on household incomes from sluggish wage growth, inflation and rising interest rates was reducing demand in the high street for more “discretionary” purchases such as clothing and footwear. However, online sales were booming, with non-food purchases up by 7.5% in August. This channel now accounts for more than 23.0% of all sales in this category, adding to the pressure on traditional retailers.
To complete Tuesday’s bleak economic news, activity in the UK construction sector also fell back in August. IHS Markit’s construction purchasing managers’ index fell to 52.9 last month from 55.8 in July, well below the consensus forecast of 55. There were some mixed messages in the data, with some pointing to a lack of new projects to replace completed work, while others said that new orders had grown by more than at any time since May last year and that employment intentions were buoyant. However, the news was received negatively in the City and the pound dropped on the news.
Some welcome relief on Wednesday as the services sector reported an acceleration of activity in August, with the IHS Markit services PMI rising to 54.3 compared to 53.5 in July, beating expectations. Looking ahead, the survey’s results suggested the good performance in the sector could continue; hiring growth also accelerated in the month and new orders grew. On the downside, optimism fell due to worries about Brexit, leading to a fall in investment. Taken together, the three PMI surveys gave a combined reading of 54.1 in August, up from 53.7 in July.
Meanwhile UK house prices rose slightly in August, according to Halifax. Prices were up by 3.7% in the quarter to August compared to the same period last year. Although positive, it was below expectations of a rise of 3.9%. Russell Galley, managing director of Halifax, was upbeat. “While the pace of employment growth has slowed, a low unemployment rate and a gradual pick up in wage growth are helping to support household finances” he said. “This has been accompanied by interest rates remaining at historic lows and a constrained supply of new houses which is helping to support prices.” However, the survey bucked the trend of numerous other recent reports that have been pointing to a softening market because of rising rates, falling demand and squeezed household finances.
Main source of information: Company Report and Accounts, Bloomberg
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