As business surveys trigger worries over a UK growth slowdown, should we be concerned?
Ben Brettell is senior economist at Hargreaves Lansdown, says Yes.
Last week’s Purchasing Managers’ Index (PMI) figures certainly point to a deceleration in economic growth, although it should be noted that, despite a modest fall in September, the PMI for the services sector (responsible for two-thirds of GDP) is still well into expansionary territory. Collectively, the recent data prints indicate that third quarter growth will still be a healthy 0.8 per cent. However, the Bank of England has been forecasting a moderate slowdown for some time, and this could well happen in the fourth quarter. Exporters are being hindered by a strong pound, and exceptionally weak growth in the Eurozone (our largest export market) remains a key risk to the economy. There are also strong signs that the housing market is beginning to slow. But with the economy decelerating a little, inflation at a five-year low and wage growth almost non-existent, the Bank of England should be able to keep interest rates on hold well into 2015.
Alan Clarke is UK and Eurozone economist at Scotiabank, says No.
The drop in sentiment in last week’s Purchasing Managers’ Index (PMI) survey was most pronounced in manufacturing, but that sector only accounts for around a fifth of the UK economy. The services sector survey also lost ground, but the level of that index remains very elevated, consistent with a respectable pace of economic growth. Furthermore, that sector accounts for three-quarters of the overall economy. The underlying details of the surveys also showed that hiring continued apace in order to cope with current workloads and expectations of further growth – hinting that the outlook remains upbeat. Clearly this could mark the first of several declines in the services sector survey. But it is also possible that the uncertainty surrounding the Scottish referendum temporarily dampened sentiment this month. Overall, we believe that this represents a mild loss of momentum, rather than a more sinister downturn in business activity.