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PMIs Show Rapid Improvement in Employment Situation

UK employment situation improves

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The rapid UK economic rebound might be tapering off according to a much watched data release, but signs of growing demand for workers should ensure the Pound remains well supported.

The flash PMI survey results for June showed a slowdown from May's record breaking numbers and largely disappointed against economist expectations with the flash Services PMI reading at 61.7, which is down on May's 62.9 and below the market expectation for a reading of 61.7.

The Manufacturing PMI actually beat expectations by coming in at 64.2 but was below the May reading of 65.6.

The Composite PMI - which takes the two readings and adjusts them to give a more accurate reading for the broader economy - read at 61.7, which is below May's 62.9 and the market's expectation for 61.7.

PMI report charts

The softer-than-expected numbers confirm whispers that the economic rebound is starting to level off, a development that we reported on in greater detail here.

Pound Sterling Live noted that short-term indicators such as mobility and card spending had all showed a recent slowing in growth, adding that the rise in cases of the Delta variant of Covid and the delay to the full lifting of restrictions could be to blame.

"Healthy PMIs tally with just about every other UK indicator, which point to economic activity above last summer's levels, when restrictions were comparably low. The biggest danger now comes from the Delta Covid-19 variant, and in particular whether it dampens buoyant confidence levels," says James Smith, Developed Markets Economist at ING Bank.

"The PMIs remain one of the most upbeat indicators of the pace of the economic recovery, insofar as they signal only a modest slowdown in month-to-month GDP growth in June. Other surveys, however, point to a sharper deceleration; indeed, both the ONS’ Business Impact of Covid-19 survey and the BoE’s CHAPS payments data suggest activity has flatlined in recent weeks," says Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics.

Nevertheless, IHS Markit says the PMI numbers certainly remain strong, and some subcomponents of the report will be cheered by markets and will therefore likely ensure any disappointments have a limited impact on Sterling.

"The overall expansion in activity was only slightly slower than the record posted in May and among the fastest since the series began in January 1998," says a report from IHS Markit.

The report showed employment growth has reached a record high amid sharply rising workloads, which should ease concerns that the UK will face a large jump in unemployment when the government's job support scheme ends in September.

"Companies responded to rising workloads by taking on extra staff at an unprecedented rate at the end of the second quarter," said IHS Markit.

In fact, the rate of job creation quickened to the strongest in the series history.

Also hitting previously unsurpassed levels, however, were rates of inflation of input costs and output prices as supply-chain disruption fuelled price pressures.

The strong employment situation combined with the rising inflation levels come just a day before the Bank of England release their latest guidance on the economy and interest rates.

The Bank could strike a positive tone given the incoming data and markets will maintain a view that an interest rate rise is likely to be delivered in 2022.

IHS Markit reported that driving the economic expansion they are seeing are surging new orders , with marked increases seen across both the services and manufacturing sectors.

But, the rate of expansion in new export orders remained much softer than that seen for total new business, amid a second successive reduction in services new business from abroad.

"Markit’s survey shows that U.K. manufacturers still are underperforming their European peers, due to Brexit, with the export orders balance of the U.K. survey undershooting the Eurozone’s for the sixth consecutive month, and by a larger margin than in May," says Tombs.

Pantheon manufacturing exports

Image courtesy of Pantheon Macroeconomics