PMI data will show growth slowing down

LEADING economic surveys are expected to show this week that the UK continued to grow at a solid pace in July, though economists warned it was unlikely that we would see a repeat of the blistering pace of growth recorded between April and June.

All three purchasing managers’ indices (PMIs) to be reported this week – manufacturing due today, construction out tomorrow and services expected on Wednesday – are forecast to remain well above the 50 level that separates expansion from contraction.

The consensus for the manufacturing index is a slight easing in growth to 57 from June’s 57.5, and some analysts such as David Page at Investec expect the index to fall further to around 55 over the course of the second half.

Manufacturers are likely to find it difficult to maintain their robust pace of growth in the face of an end to inventory adjustment, fiscal tightening and the subdued pace of growth in the Eurozone.

The services PMI, out on Wednesday morning, is predicted to have inched higher to 54.5 in July from 54.4 in June as a result of core services continuing to grow at a similar pace to that seen in the second quarter.

However, economist Jonathan Loynes at Capital Economics warns that the business expectations index fell sharply in June, which could point to a slowdown in momentum in July and the remaining weeks of the third quarter.

Now that the official economic data appears to have caught up with what the more optimistic surveys have been indicating since the third quarter of 2009, the PMIs suggest that the UK economy will avoid a double-dip recession but that the second quarter saw conditions that were as good as it is going to get for some time to come.