PMI Surveys Show U.K. Economy Struggling With Slow Growth And Rising Prices

The pace of UK economic growth edged down to the joint-lowest for just over a year in September, according to PMI survey data. However, price pressures intensified to suggest that policymakers may continue to talk up rate hike prospects.

Economy on course for modest Q3 growth

The latest survey data indicated that the economy continued to expand at a modest pace in September, but that growth momentum continued to be gradually eroded. The ‘all-sector’ IHS Markit/CIPS PMI slipped further from April’s recent high, down from 53.7 in August to 53.6 in September. The current reading matched February’s recent low to therefore signal the joint-weakest expansion of output since August of last year.

The survey data put the economy on course for another subdued 0.3% expansion in the third quarter, matching the performance seen in the first half of the year, albeit with momentum being gradually lost over the course of the quarter.

With the exception of the slowdown seen in the months surrounding last year’s referendum, the third quarter performance was the worst since the first quarter of 2013.

Slower manufacturing output growth and the first drop in construction activity for 13 months were accompanied by on-going weak service sector growth in September. Although output of the service sector grew at a slightly faster rate than August, the pace of expansion for the third quarter as a whole was the worst recorded for a year.

Within services, consumer-facing companies have reported especially weak growth in recent months, leaving reliance on financial services, transport and business services as the main drivers.

The slow erosion of growth may continue in coming months. Inflows of new business in September were the lowest for 13 months, suggesting demand growth has waned again. Business optimism about the year ahead meanwhile slipped lower again in September, running at a level historically consistent with business activity growth waning further in coming months and the economy slowing towards stagnation at best.

Hiring slowdown amid rising costs

The September surveys also signalled some pull-back in hiring. While August had seen the largest rise in employment since October 2015, September’s jobs growth was the weakest since June reflecting slower payroll gains in both manufacturing and services.

Slower employment growth in part reflected difficulties finding suitable staff, but was also a symptom of a reticence to hire amid worries about future demand and the need to offset higher input costs. Average input cost inflation accelerated in all three sectors, rising as a whole at the steepest rate since February.

Although not matching the highs seen earlier in the year, the rate of input price inflation remained elevated by historical standards, attributed to higher import costs due to sterling’s weakness as well as rising global commodity prices, notably for oil.

Higher costs were often passed on to customers, leading to the largest monthly rise in average prices charged for goods and services since April and suggesting consumer price inflation could rise above 3% in coming months.

Policymakers pulled in different directions

The rise in price pressures will pour further fuel on expectations that the Bank of England will soon follow-up on its increasingly hawkish rhetoric and hike interest rates. However, the decision is likely to be a difficult one, as the waning of the all-sector PMI in September pushes the surveys slightly further into territory that would normally be associated with the central bank loosening rather than tightening policy.


Hurricanes Irma and Harvey Caused U.S. Economy to Lose Jobs in September

The September jobs report is out.

It showed that the US economy shed jobs for the first time since 2010, something the Bureau of Labor Statistics blamed on the damage caused by the hurricanes Irma and Harvey.

In a release Friday, the BLS said the hurricanes affected the payroll jobs number but not the unemployment rate.

“It is likely that the payroll employment estimates for September were lower due to the effects of Hurricanes Irma and Harvey,” William J. Wiatrowski, the acting BLS commissioner, said in the release.

“The storms caused large-scale evacuations and severe damage to many homes and businesses,” he continued. “Many employees in the areas affected by the hurricanes were likely off payrolls during the reference pay period for September.” 

Nonfarm payrolls fell by 33,000 in September, according to the BLS. Most of the losses occurred in the leisure-and-hospitality sector. It shed 111,000 jobs, its most dating back to at least 1939.

Within that sector, the BLS drew attention to employment in food services and drinking places, which fell by 105,000 last month.

“In this industry, a large majority of workers are not paid when they are absent from work,” Wiatrowski said. “Hence, if these employees were unable to work during the September survey reference pay period because they had evacuated, or because their establishments were not open for business due to power failures or other effects of the hurricanes, they were not included on September payrolls.”

The unemployment rate fell to 4.2%, its lowest level since February 2001.

“Payrolls were hit hard by the hurricanes,” Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said. “We expect the recovery to begin in October, but if Katrina is any guide the big rebound won’t come until November.”

Irma made landfall during the September jobs report’s reference period, while Harvey hit before it. Puerto Rico and the US Virgin Islands are not included in the report.

This post originally appeared on Business Insider.