The decline in the PMI indices is less pronounced in the United Kingdom than in the eurozone, but it has been well underway since this autumn: the composite PMI fell by 1.8 points to 49.9 in November, with a deterioration in both the manufacturing sector (-1.3 points to 48.6) and in services (-2 points to 50). In addition, industrial production hit a post-Covid low in September, on a three-month moving average basis. As with industry, the residential construction sector remains depressed, with the PMI down 4.9 points to 49.4 in November. This follows a further contraction in housing construction (excluding social housing) of 0.7% in Q3, after a decline of 2.2% q/q in Q2.
However, these dynamics are offset by a recovery in consumption and other investment items. According to preliminary figures from the ONS, household final consumption and business investment, excluding housing construction, grew by 0.5% q/q and 1.2% q/q, respectively, in Q3, up for the third quarter in a row. While retail sales fell by 0.7% m/m in October, they edged higher on a three-month moving average basis.
Inflation rebounded in October from 1.7% to 2.3% y/y, driven mainly by the increase in the price cap on gas and electricity, which took effect that month. At 5.0%, inflation in services is not falling – it remains particularly high in health and education. The room for maneuver is therefore still limited for the Bank of England, which is expected to opt for the status quo at the MPC meeting on 19 December.
Real GDP growth for Q3 came in below expectations at 0.1% q/q. The increase in consumption and investment mentioned above was partly offset by the decline in exports, and especially by the effects of lower inventories. The support provided by the decline in interest rates to activity is still limited but will play more favourably in Q4 2024 and even more so in 2025. We expect growth to rebound to 0.3% q/q in the fourth quarter, before strengthening and stabilising at 0.4% quarter-on-quarter for 2025 as a whole.
Article completed on 25 November 2024
