It’s a rather busier week on the data front; we’ll get a bit more insight into how the UK economy was performing ahead of the referendum. Interesting? Probably. Insightful? Probably not.
Domestic activity – what the PMIs are saying
We’ve had two of the three Purchasing Managers’ Indicators (PMIs) out for June already. Friday’s manufacturing PMI showed no sign of referendum anxiety with activity picking up across the sector – manufacturers in our own Manufacturing Outlook report in early June were singing from a similar hymn-sheet.
The picture for construction on the other hand was considerably gloomier with the PMI dropping well into contractionary territory at 46 – the weakest reading for seven years. The PMI report indicated that caution ahead of the referendum was a bigger factor at play, with contracts being pushed out. Expect to see more of this in the months ahead.
So tomorrow, we’ll see how the service sector fared in June. Looking at consumer confidence and retail sales indicators – both of which have been holding up nicely – we might not expect the largest part of our economy to have shown signs of major Brexit jitters in June. Indeed, any softening in services activity is more likely to be a consequence of June being the second wettest ever.
Production and trade
Back to manufacturing … on Thursday and Friday the ONS publish statistics on industrial production and trade in May respectively.
Previous releases showed manufacturing output and exports on the up. In April, manufacturing output increased by a whopping 2.4% on the month, with most sub-sectors seeing gains. We don’t expect this trick to be repeated in May, although we do think that the major drags from oil and gas related sectors, for example, will continue to wane and underlying strengths in the transport and pharma sectors will continue to be evident in the short-term.
Similarly, manufactured exports continued their recovery in April. More signs of life in European markets and easing concerns about emerging market growth have been helping. But like all the other data releases here – the questions is for how long?
If the trade and production data for May indicate an improving picture ahead of the referendum, it might at least provide some comfort that manufacturing has entered this period of elevated uncertainty in reasonable shape. But where we go from here will not be clear for several months.