UK April Services PMI out of contraction

UK April Services PMI out of contraction

Macro 4 minutes to read

Christopher Dembik

Head of Macro Analysis

Summary: At face value, the latest UK services PMI print suggests a new level of confidence in British industry. But don't be fooled – Brexit anxiety still weighs heavily on the economy and credit growth is shockingly bad for a developed country.

The UK April Services Purchasing Msnagers' Index is out – it reached 50.4 vs 50.5 forecast and prior 48.9. As widely expected by investors, it is getting out of contraction, but the trend remains negative in the long run. We can explain this increase by the fact that the original Brexit deadline of March 29 was postponed and by positive momentum in the labour market (notably higher wages). Overall, as pointed out by IHS Markit, the rate of expansion was much softer than on average in 2018 and a large number of respondents continued to highlight Brexit uncertainty as the main risk for the UK economic outlook. This should prompt customers to postpone spending in coming months, an attitude could be accentuated by low household saving ratio compared to the historical standard of 4.8%.

The big picture

Our view for the British economy has not changed much over the past few months. Brexit uncertainty remains a key issue, but the number one issue is the lack of new credit growth. Our in-house credit impulse for the UK, which leads the real economy by nine to 12 months, is running at -2.2% of GDP, one of the weakest levels seen in developed countries.

All the other leading indicators also point to downside risks as Brexit anxiety is still hurting confidence and business. The UK OECD leading indicator, which is designed to anticipate turning points in the economy six to nine months ahead, fell in February for the 19th straight month. The year-on-year rate started 2018 at minus 0.6%; it now stands at -1.52%, which is quite a swing over such a period of time.

In addition, new car registrations, which are viewed as a leading indicator of the wider economy in the UK, have been tracking downwards since 2016, driven by falling consumer confidence. The drop since the pre-Brexit referendum is stunning – about 12%! The UK economy may still be able to run above potential for a few more quarters, mostly due to stockpiling for Brexit but, as one of its key drivers, new credit, is vanishing, it will ultimately lead to less growth and increased risk.

Latest Market Insights

Macro

Saxo Spotlight: What’s on investors' & traders' radars this week? Fed/ECB/BOE meetings, US ISM and jobs report, China back from holiday and reports PMI, Megacap earnings

Equities

Market Insights Today: Mega week of data, central bank meetings & earnings; China returns – 30 January 2023

Equities

Video: Pivotal week; Fed meets, Apple, Amazon and Alphabet report, ASX sees biggest jump since 2020

Commodities

Commodity Weekly: Oil ready to pop as coffee perks up and gold takes a breather

Forex

FX Update: This week in FX was watching paint dry. Not so next week.

Equities

Technical Update - ASML and ASM International facing resistance and correction

Podcast

Podcast: Massive week ahead. Pondering Adani contagion in EM.

Equities

Technical Update - Rebounds in Tesla and Apple set to continue - but how far?

Outrageous Predictions 2023: The War Economy

Billionaire coalition creates trillion-dollar Manhattan Project for energy
The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
Read article
French President Macron resigns
The political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Read article
Gold rockets to USD 3,000 as central banks fail on inflation mandate
As markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
Read article
EU Army forces EU down path to full union
With continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
Read article
A country agrees to ban all meat production by 2030
In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
Read article
UK holds UnBrexit referendum
Following a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Read article
Widespread price controls are introduced to cap official inflation
History tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
Read article
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve asset
Sanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
Read article
USDJPY fixed to the USD at 200 as Japan overhauls financial system
Following the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Read article
Tax haven ban kills private equity
With the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.
Read article