UK purchasing managers' index highlights endurance of economy - ING

James Knightley, Senior Economist at ING, notes that the UK composite PMI has risen further, highlighting the underlying strength of the economy at a time of massive political uncertainty.

Key Quotes

“The UK service sector PMI for November has come in at 55.2, up from 54.5 in October. When adding in the manufacturing (53.4 vs 54.2 prev) and construction (52.8 vs 52.6 prev) components the composite index stands at 55.2 versus 54.7 in October. This is the best reading since January and suggests that the UK economy is experiencing a very strong end to the year.”

“Certainly the economy has held up much better than we had been expecting in the wake of the Brexit referendum outcome. This can be attributed in part to the fact that the UK is yet to trigger Article 50, meaning that nothing has changed yet, while the plunge in sterling has boosted the UK’s international competitiveness. We should also include the positives from a relatively smooth political handover to Theresa May as Prime Minister and the stimulus from the Bank of England. The better weather post the referendum and a big medal haul at the Olympics and Paralympic games may also have helped lift the national mood and supported confidence and activity.”

“However, we are expecting slower growth through 2017. Business surveys certainly suggest that Brexit uncertainty is leading to a pull-back in investment and hiring intentions for next year. However, our bigger worry is the sharp pick-up in inflation, which is likely to squeeze household spending power and result in weaker consumer spending growth.”