United Kingdom: Services-led growth and price risks – Nomura

Nomura’s European Economics team highlights that UK composite output PMI rose to 52.5 in August, with services offsetting weaker manufacturing. GfK consumer confidence improved to its highest level in two years, supporting activity. However, UK composite input and output price indices climbed further above February levels, leaving Nomura forecasting no BoE rate change but flagging upside risks if price pressures persist.

Stronger services and rising inflation signals

"Meanwhile, the manufacturing output index declined in August in the UK, and it was the services sector that contributed to the overall increase in the composite index. UK GfK consumer confidence data out this morning showed a further notable improvement in August, rising to -14 from -17 and marking the highest reading for two years."

"By contrast, in the UK, composite price indices increased in August, due to rises in the service sector which outweighed declines in manufacturing. The composite input price index increased 1.4pts to 67.2 and the composite output price index was up 0.7pts to 57.1. Both are higher than in February."

"However, the rise in UK service sector price indices highlights the risk that the BoE may need to raise rates, against our forecast of no change this year. However, other price indicators, most crucially the BoE’s own DMP survey are important to watch to understand forward-looking price pressures, which help policymakers gauge potential for second-round effects."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)