Private sector growth slows faster than expected – PMIs

The UK’s private sector continued has continued to grow this month (Victoria Jones/PA)
The UK’s private sector continued has continued to grow this month (Victoria Jones/PA)

Growth in the UK’s private sector has slowed much faster than expected this month as the country’s manufacturing firms saw the steepest drop in production for four months.

The S&P Global/CIPS flash UK purchasing managers’ index showed a score of 53.9 in May on Tuesday.

It was a reduction from April’s 12-month high of 54.9, but also well below the 54.7 that experts had forecast, according to an average supplied by Pantheon Macroeconomics.

It still shows growth – anything above 50 means that the economy is expanding, according to the figures – but far lower than had been hoped.

This growth was focused in the services sector, the surveyors said. Travel, leisure and hospitality business said that consumer demand was resilient. But manufacturers reported the opposite.

May is the third month in a row that manufacturing output fell, the survey indicated. Respondents said this was due to subdued order books and customers using up their stock.

Some also said that production had been lower due to the extra bank holiday in May.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The UK economy enjoyed another month of strong growth in May, with the expansion continuing to be driven by surging post-pandemic demand in the service sector, notably from consumers and for financial services, with hospitality activities buoyed further by the coronation.

“The surveys are consistent with GDP (gross domestic product) rising 0.4% in the second quarter after a 0.1% rise in the first quarter.

“However, this growth spurt is driving renewed inflationary pressures, as service providers struggle to meet demand and hence not only offer higher wages to attract staff but also find themselves able to charge more for their services.

“It’s a different story in manufacturing, where spending is being diverted away from goods to services, and many companies are also winding down their inventories, exacerbating the downturn in demand and driving both output and prices lower.

“The UK is therefore seeing a tale of two economies, with the divergence between manufacturing and services posing difficulties for policymakers.

“However, it’s the far larger service sector that will typically dictate policy, meaning these survey results are nothing but hawkish in suggesting the Bank of England has more work to do to quash stubbornly high inflationary pressures in the services economy.”