Bill Diviney, senior economist at ABN AMRO, points out that for the UK economy, the services PMI took another leg lower in March, falling into contractionary territory at 48.9, suggesting Brexit uncertainty is exerting a bigger drag on economic growth.
Key Quotes
“This followed an upside surprise to the manufacturing PMI on Monday, although much of that surprise was driven by inventory building (Brexit-related stockpiling) that is likely to unwind over the coming months. Indeed, the stocks of both finished goods and purchases indices in the manufacturing PMI rose to record levels of 55.9 and 66.2 respectively in March.”
“Given the services sector is by far the bigger driver of growth in the UK, the composite PMI fell to 50.0 from 51.5 in February. Our base case continues to be that a long delay to Brexit will happen before there is any resolution to the uncertainty, although the pathway to that could be bumpy given the level of cabinet opposition to such a delay. As such, we expect uncertainty to continue to weigh on economic activity over the coming months, and have subsequently downgraded our growth forecast for 2019.”
“We now expect growth of just 0.8% in 2019, down 0.3pp from 1.1% previously, and well below consensus (1.3%) and Bank of England (1.2%) forecasts.”
“We maintain our 2020 growth forecast at 1.7%, on the expectation of an investment rebound once there is more clarity on the pathway forward. In any case, given the weak near term growth outlook, we do not expect the Bank of England to tighten further this year.”
Share
