Published: 24/08/2022 By ECAPYesterday morning’s UK PMI data was very much a mixed bag, with a sharp slowdown in manufacturing activity (to 46.0 in August) offsetting the stronger-than-expected services index (52.5 vs. 52.0 consensus). For now, the composite PMI continues to print above the key level of 50, although only barely, and it surely won’t be too long before we see this indicator tip into contractionary territory. The UK’s cost of living crisis is set to get worse before it gets better, and with energy prices continuing to march to fresh highs, it seems increasingly likely that a sharp slowdown, and a potentially protracted recession, may be on the horizon. Sterling did, however, take the data in its stride, and investors may perhaps be encouraged that for now at least, UK economic data is holding up slightly better than elsewhere.
Markets had billed yesterday’s PMI numbers as the most important data releases on the economic calendar this week, and they certainly lived up to all the hype. Most alarming was the far worse-than-expected data out of the US economy. The US services PMI from S&P was an unmitigated shocker, collapsing to 44.1 in August from 47.3, after markets had expected a bounce to just below flat growth. Not only is this now well below the level of 50 that separates expansion from contraction, but it is comfortably the lowest level since the pandemic shutdowns in May 2020. US manufacturing activity appears to be holding up slightly better, although the big downside surprise in the composite index (45.0 vs. 47.5 expected) does not make for very good reading at all.