UK election triggers ‘surge in demand’ says PMI survey
The new UK government has been greeted by a “surge in demand” from British businesses, according to the purchasing managers’ index (PMI).
The UK manufacturing sector is enjoying the strongest growth in two years – in stark contrast to its German counterparts. The manufacturing index rose to 51.8 for July, up from 50.9 in June, according to data company S&P Global. Anything below the 50 mark on the index indicates a drop in activity, but above 50 indicates growth.
But the PMI survey’s compilers gave a very positive interpretation of the underlying data, saying businesses have reported increased optimism, hiring and demand.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said:
The flash PMI survey data for July signal an encouraging start to the second half of the year, with output, order books and employment all growing at faster rates amid rebounding business confidence, while price pressures moderated.
The first post-election business survey paints a welcoming picture for the new government, with companies operating across manufacturing and services having gained optimism about the future, reporting a renewed surge in demand and taking on staff in greater numbers. Prices have meanwhile risen at their lowest rate for three and a half years, further raising the prospect of a summer rate cut.
Business confidence fell to a six-month low in June, but rebounded in July, and was only slightly below the two-year high seen in February. S&P Global said:
Manufacturing and services firms were alike in showing greater optimism towards future business activity, amid expectations of improving demand conditions, stronger business investment, interest rate cuts and political stability.
Key events
Rachel Reeves, the chancellor, has complained that Labour’s economic inheritance from the Conservative party is the worst since the second world war. That may or may not be true, but it seems a short-term certainty boost may be coming through.
Matthew Ryan, head of market strategy at Ebury, a financial services firm, said:
This morning’s business activity data will have provided welcome news to newly appointed PM Keir Starmer, remaining consistent with a UK economy that is growing at a solid, albeit far from spectacular, pace.
Today’s data supports our generally optimistic view on the UK economy, which we think appears primed for an outperformance relative to the rather subdued expectations in 2024. Business and consumer confidence should be propped up by the normalisation in rates of inflation, and the high likelihood of lower Bank of England interest rates, which we expect to start cutting in August. We also see a mild boost to demand from the removal of the election uncertainty and the possibility of closer UK-EU ties under the new Labour government.
It is not all gravy for the UK economy though. The Bank of England may have pause before cutting interest rates in August, particularly given internal arguments over where inflationary pressures are building.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said:
Policymakers will likely take a cautious approach to loosening policy amid signs of inflationary pressures pivoting away from services towards manufacturing, where Red Sea shipping delays and higher freight prices are adding to costs again. The renewed hiring trend could also add to pay pressures, sustaining some stickiness of inflation in the coming months
Britain’s manufacturing and services sectors both reported stronger sales growth this month, according to the purchasing managers’ index (PMI) survey.
Survey compiler S&P Global said it was “the strongest increase in total new business since April 2023”.
The Labour party has long argued that it will offer stability to businesses, compared with the turmoil of the last eight years since the referendum on leaving the EU. After a landslide victory on 4 July, it appears that the economy will benefit – at least in the short term – from the end of uncertainty over the direction of the government.
S&P Global said:
Companies often commented on an improvement in market confidence and the securing of new contracts, following some reports of a pause in client spending decisions prior to the general election.
UK election triggers ‘surge in demand’ says PMI survey
The new UK government has been greeted by a “surge in demand” from British businesses, according to the purchasing managers’ index (PMI).
The UK manufacturing sector is enjoying the strongest growth in two years – in stark contrast to its German counterparts. The manufacturing index rose to 51.8 for July, up from 50.9 in June, according to data company S&P Global. Anything below the 50 mark on the index indicates a drop in activity, but above 50 indicates growth.
But the PMI survey’s compilers gave a very positive interpretation of the underlying data, saying businesses have reported increased optimism, hiring and demand.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said:
The flash PMI survey data for July signal an encouraging start to the second half of the year, with output, order books and employment all growing at faster rates amid rebounding business confidence, while price pressures moderated.
The first post-election business survey paints a welcoming picture for the new government, with companies operating across manufacturing and services having gained optimism about the future, reporting a renewed surge in demand and taking on staff in greater numbers. Prices have meanwhile risen at their lowest rate for three and a half years, further raising the prospect of a summer rate cut.
Business confidence fell to a six-month low in June, but rebounded in July, and was only slightly below the two-year high seen in February. S&P Global said:
Manufacturing and services firms were alike in showing greater optimism towards future business activity, amid expectations of improving demand conditions, stronger business investment, interest rate cuts and political stability.
It is looking like a tricky time for the German economy. This graph shows how GDP contraction often follows close on the heels of negative readings in the purchasing managers’ index:
Not even the boost from the Euro 2024 football championships has been able to deliver Germany from weak growth. Competition from Chinese carmakers (who are dominating the electric car market) is a key problem.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
The elephant in the room is the various structural issues. With respect to the manufacturing sector, the main structural challenges include labour market shortages, an investment backlog in infrastructure, a lack of digitalization, and relatively high energy prices. However, the most significant factor impacting the German manufacturing sector is the increasing loss of global market share of German car and machinery producers to competitors in China. Unfortunately, this problem is here to stay.
Germany’s economic downturn is somewhat buffered by a still-growing service sector. However, the situation there is far from comfortable. Firms have even cut jobs, and outstanding business declined faster than in the previous month. Moreover, it appears that the mini boom in tourism, which could be associated with the European football championships, was already over in July as new export business in services shrank.
German manufacturing turmoil deepens
German business output dropped in July as the manufacturing sector’s woes deepened, to the surprise of economists who had predicted an improvement.
The manufacturing purchasing managers’ index (PMI), a widely followed measure of business activity, dropped from 45.1 points to 42.2, a nine-month low, according to data company S&P Global. Anything below the 50 mark on the index indicates a drop in activity.
The German services sector still reported an expansion in output, at 52 points, but the manufacturing weakness drove the composite reading down below 50.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which sponsors the survey of executives, said he now expected German GDP to fall by 0.4% in the third quarter. He said:
This looks like a serious problem. Germany’s economy fell back into contraction territory, dragged down by a steep and dramatic fall in manufacturing output. The hope that this sector could benefit from a better global economic climate is vanishing into thin air.
While it is still early days and many data points are yet to come, the second half of the year is starting on a very weak note.
‘Oscars of advertising’ owner to be bought by FTSE 100 rival
Mark Sweney
Informa, the FTSE 100 events business, has made a £1.2bn cash offer for Ascential, which owns global conferences including Money20/20 and Cannes Lions, the “Oscars of advertising”.
Ascential recently completed the sale of its retail data operation WGSN to private equity group Apax for £700m, and its digital commerce business to global advertising group Omnicom for £740m.
The company, which employs about 700 people, said in March it intends to return £850m to shareholders following those sales.
Stephen Carter, the chief executive of Informa, said:
Informa is in the business of creating, nurturing and growing world class business-to-business brands. Lions and Money20/20 are outstanding examples of such brands. Combined, we can expand them into more sectors, accelerate growth and take advantage of new opportunities.
The broader FTSE 100 index has dropped by 0.42%, amid general stock market gloom across Europe.
Here are the opening snaps from Europe’s benchmark indices, via Reuters:
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EUROPE’S STOXX 600 DOWN 0.7%
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FRANCE’S CAC 40 DOWN 1.3%, SPAIN’S IBEX DOWN 0.3%
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EURO STOXX INDEX DOWN 0.8%; EURO ZONE BLUE CHIPS DOWN 0.9%
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GERMANY’S DAX DOWN 0.9%
Shares in easyJet have duly surged by 9% in the opening minutes of trading after it revealed a much more positive outlook than rival Ryanair for the summer.
That erases its losses for the week. Before today it was down 16% for the year; now that is back to 8%.
You can see the slump and the subsequent recovery in this share price chart, which shows its performance during July.
EasyJet positive after Ryanair gloom; Heathrow airport has first-half passenger record
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
EasyJet has said it expects a “record-breaking summer” after the airline revealing a 16% jump in profits, in contrast to the weaker sales expected by Irish rival Ryanair.
The Irish carrier’s shares slumped by 17% on Monday after it shocked investors with a steep fall in profits and expectation of falling ticket prices. That drove other airlines down, including a 7% drop for easyJet.
The Ryanair surprise had hung over the Farnborough air show in Hampshire, where the global aviation industry has gathered for a biennial meeting. The aviation industry has mostly been in positive mood as it pushes to meet soaring global demand – although it has offered very little answer to how it will cut total carbon emissions in the coming decades.
Yet easyJet on Wednesday reported profits of £236m in the second quarter of 2024, up from £203m during the same period last year.
Johan Lundgren, chief executive of easyJet, said the company had seen “strong performance in the quarter”. He said:
This result was achieved despite Easter falling into March this year, demonstrating the continued importance of travel and this means we remain on track to deliver another record-breaking summer, taking us a step closer to our medium term targets.
EasyJet’s revenues rose by 11% year-on-year to £2.6bn, and it said it had already sold 1.5m more seats for the summer than at the same point last year.
Heathrow says 30 June was busiest day ever
London Heathrow airport has said it is enjoying an “exceptional start to the year” after a record number of people travelled through it in the first six months.
Europe’s busiest airport reported a 1% drop in revenues for the first half of 2024 to £1.7bn, but it said that 39.8m passengers flew to and from it.
30 June was the airport’s busiest day ever, with over 268,000 passengers travelling on over 1,300 flights.
The agenda
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8:30am BST: Germany HCOB manufacturing purchasing managers’ index (PMI) flash reading (July; previous: 43.5 points; consensus: 44)
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8:30am BST: Germany HCOB services PMI flash (July; prev.: 53.1; cons.: 44)
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9am BST: Eurozone HCOB manufacturing PMI (July; prev.: 45.8; cons.: 46.1)
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9am BST: Eurozone HCOB services PMI (July; prev.: 52.8; cons.: 53)
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9:30am BST: UK S&P Global services PMI (July; prev.: 50.9; cons.: 51.1)
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9:30am BST: UK S&P Global services PMI (July; prev.: 52.1; cons.: 52.5)
