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PMI shows stronger than expected output, but higher cost pressures

UK DATA
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  • Like in the Eurozone, the UK manufacturing PMI came in higher-than-expected at 47.3 (46.7 exp, 46.2 prev), a 9-month high. However, in contrast to the Eurozone, the services PMI was also above expectations at 53.8 (53.2 exp, 53.4 prev), an 8-month high. We are starting to see some initial impacts on input prices from the Red Sea situation and wage pressures are still seeing service input prices increase. Overall, this is a relatively hawkish report for the MPC - demand stronger than expected, but pressures also increasing.
  • On prices: "Private sector firms meanwhile recorded the steepest rise in input costs since August 2023, driven by renewed cost pressures in the manufacturing sector. There were widespread reports of higher freight costs in the wake of the Red Sea crisis. Moreover, global shipping delays meant that suppliers’ delivery times lengthened for the first time in 12 months and to the greatest extent since September 2022"
  • "Service providers meanwhile signalled another steep rise in input prices, which was mostly linked to strong wage pressures. However, the latest increase in operating expenses was the slowest for three months and this allowed for a softer rise in their average prices charged. Measured overall, prices charged by private sector firms increased at the weakest pace since last October."
  • On the growth in services: "Survey respondents mostly commented on improved confidence among clients and some cited a turnaround in demand due to lower borrowing costs."
  • The employment growth side was mixed with services strong but manufacturing still weak: "January data signalled a modest rise in private sector employment, which ended a four-month period of job shedding. Higher staffing levels reflected a rebound in service sector recruitment, which survey respondents linked to new project starts and anticipated demand growth. That said, there were still many reports citing redundancies and the non-replacement of voluntary leavers, especially in the manufacturing sector."
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  • Like in the Eurozone, the UK manufacturing PMI came in higher-than-expected at 47.3 (46.7 exp, 46.2 prev), a 9-month high. However, in contrast to the Eurozone, the services PMI was also above expectations at 53.8 (53.2 exp, 53.4 prev), an 8-month high. We are starting to see some initial impacts on input prices from the Red Sea situation and wage pressures are still seeing service input prices increase. Overall, this is a relatively hawkish report for the MPC - demand stronger than expected, but pressures also increasing.
  • On prices: "Private sector firms meanwhile recorded the steepest rise in input costs since August 2023, driven by renewed cost pressures in the manufacturing sector. There were widespread reports of higher freight costs in the wake of the Red Sea crisis. Moreover, global shipping delays meant that suppliers’ delivery times lengthened for the first time in 12 months and to the greatest extent since September 2022"
  • "Service providers meanwhile signalled another steep rise in input prices, which was mostly linked to strong wage pressures. However, the latest increase in operating expenses was the slowest for three months and this allowed for a softer rise in their average prices charged. Measured overall, prices charged by private sector firms increased at the weakest pace since last October."
  • On the growth in services: "Survey respondents mostly commented on improved confidence among clients and some cited a turnaround in demand due to lower borrowing costs."
  • The employment growth side was mixed with services strong but manufacturing still weak: "January data signalled a modest rise in private sector employment, which ended a four-month period of job shedding. Higher staffing levels reflected a rebound in service sector recruitment, which survey respondents linked to new project starts and anticipated demand growth. That said, there were still many reports citing redundancies and the non-replacement of voluntary leavers, especially in the manufacturing sector."