This week’s data releases are dominated by the January PMIs – manufacturing, services and construction, as well as the Bank of England’s “Super Thursday”.
December’s manufacturing PMI printed at an impressive 56.1, a 30-month high and well above the long term average of 51.5. While it is unlikely that January’s PMI will beat this, we still expect the indicator to post well above the 50 no change mark. Recent indicators point to manufacturing carrying some momentum going into 2017, with last week’s preliminary GDP estimates showing manufacturing expanding by 0.7% in the final quarter of the year and by 0.3% as a whole in 2016. Our own Manufacturing Outlook also shows that manufacturers are expecting growth in the first quarter of the year. Enduring healthy demand conditions in key export markets as well as healthy trade date, should help to provide a relatively strong PMI recording in January.
The concern however, as it will be for much of the year is rising input prices from the Sterling depreciation. In the year to December, manufacturer’s input prices rose by a hefty 15.8%, mounting considerable pressure on manufactures’ margins. With this trend set to continue, this will be of growing concern to manufacturers.
The services and construction sectors round off the trio of PMI releases. Both performed strongly in December, printing at 56.2 and 54.2 respectively.
Bank of England Super Thursday:
The Bank of England's MPC meeting will take place on Thursday. We are not expecting any change in the Bank Rate this time. However, with inflation rising to 1.6% in the year to December, and set to rise further in the coming months, a change in tone regarding the MPC’s discussions is likely.