The S&P Global UK PMI Sara Cota

The S&P Global UK PMI (Purchasing Managers’ Index) is a leading economic indicator that offers insights into the health of the UK’s manufacturing and services sectors. This index is subdivided into three key elements: Manufacturing, Services and Composite. Released monthly, the UK PMIs provide timely data on economic trends that help governments, financial institutions, and corporations in forecasting, analysis, and planning.

The UK PMI is derived from surveys conducted among purchasing managers in the manufacturing and services sectors. These surveys gather data from various companies and organisations, focusing on purchasing decisions related to goods and services. The survey includes questions about business conditions, new orders, employment, supplier deliveries, and future expectations. Their answers will indicate whether conditions have improved, remained the same, or deteriorated compared to the previous month; the index is calculated as the percentage of respondents reporting an improvement plus half the percentage reporting no change. Managers respond based on their observations and experiences, with each question scored on a scale from 0 to 100. The aggregated scores from these responses form the overall PMI score.

  • A PMI score below 50: This indicates a contraction in the sector being measured
  • A PMI score of around 50: This suggests no change or a neutral level of activity
  • A PMI score above 50: This indicates expansion in the sector.

*S&P Global applies a seasonal adjustment method to refine these indices.

It is common that ‘Flash’ PMIs are released about a week before the final results. These are preliminary estimates and are calculated similarly to the final data, but from an early sample comprising 80%-85% of the total.

Fluctuations in PMI data can largely influence market trends and asset allocation. For example, an increasing PMI may boost investor confidence, leading to greater investments in cyclical equities (e.g. industrial stocks) and growth-oriented assets. Conversely, a declining PMI might prompt a shift towards safer investments like government bonds and defensive stocks (e.g. Utility Companies), as investors anticipate economic slowdowns.

Below is a breakdown of the components in the S&P UK Global PMIs.

Manufacturing PMI:

The UK Manufacturing PMI specifically examines the manufacturing sector, measuring business activity, new orders, employment, and stock levels. A high manufacturing PMI (typically a score above 50) tends to indicate robust industrial activity, high demand, increased production, and workforce expansion, which can lead to higher GDP growth and economic stability. Conversely, a low manufacturing PMI (typically a score below 50) signals weakening industrial activity, reduced orders, and potential layoffs, indicating economic challenges.

In June 2024, the S&P Global UK Manufacturing PMI rose slightly to 51.4 in June 2024 from 51.2 in May, just above market expectations of 51.3. This marks only the third period of factory activity expansion in the past two years, according to the flash estimate.

Services PMI:

The UK Services PMI focuses on the services sector, including retail, hospitality, finance, and healthcare. It examines business activity/output, new orders, employment levels, supplier deliveries, backlogs of work, input prices, prices charged, and future business expectations.

In June 2024, the S&P UK Services PMI fell to 51.2 in June 2024 from 52.9 in May, below forecasts of 53.0. This marked the second consecutive month of slowing growth, with business activity rising modestly at its weakest pace in seven months. Higher customer demand was offset by delayed spending due to the upcoming general election.

Composite Index:

The UK Composite PMI is a weighted average of the manufacturing and services PMIs, providing a comprehensive measure of overall economic conditions. In the context of the Composite PMI, "weighted" means that the Manufacturing PMI and the Services PMI are combined in a manner that reflects their relative importance to the overall economy. The weighting process involves assigning different levels of significance to each sector based on factors such as their contribution GDP or overall economic activity.

For example, if the services sector constitutes 80% of the economy and the manufacturing sector constitutes 20%, the Composite PMI will reflect this by giving more weight to the Services PMI than to the Manufacturing PMI. The exact weights can vary by country depending on the specific structure of the economy.

The weighted average ensures that the Composite PMI provides a balanced and accurate representation of the economic conditions across both sectors. This comprehensive measure helps analysts, policymakers, and businesses understand the overall economic health more effectively than looking at the manufacturing or services PMIs in isolation.

In June 2024, the UK S&P Composite PMI fell to 51.7, slightly below the expected 53.0, marking the weakest growth since November 2023. The slowdown was driven by a deceleration in the service sector, despite stronger manufacturing. Notably, business confidence weakened due to political uncertainty ahead of the general election.

Overall, fluctuations in the S&P Global UK PMI significantly impact investor sentiment and decision-making. Investors closely monitor PMI data for forward looking insights into business conditions and economic trends, allowing them to better allocate their portfolios to maximise returns and manage risks effectively. For instance, consistent PMI growth might lead to expectations of interest rate hikes by the Bank of England to control inflation, while a declining PMI might prompt monetary easing to stimulate the economy.

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