UK: PMIs suggest the economy is holding up well in the face of Brexit - ING

James Knightley, Senior Economist at ING, suggests that the UK service sector purchasing managers' index followed the manufacturing and construction indices higher, indicating that the economy has stabilised after the initial shock of the vote .

Key Quotes

“The service sector PMI has bounced the most on record, albeit from a seven year low, as the initial negative shock from Brexit has dissipated. The headline has come in at 52.9 for August, up from 47.4 in July and with the manufacturing and construction indices from last week also having rebounded, the overall composite index is now at 53.6, which is consistent with trend growth in the UK.

New orders posted a strong recovery and it is likely that the smooth transition of political leadership and the aggressive response from the Bank of England, plus the competitiveness boost from sterling's plunge, have all helped to ease the immediate fears for the economy. With other economic data suggesting that consumers are still spending, the UK Looks set to post a reasonably good 3Q GDP reading, although likely down on the 0.6% seen in 2Q.

Nonetheless, risks clearly remain given business surveys have suggested firms are pulling back on hiring and investment and foreign firms are becoming more vocal about their Brexit fears. So, while additional BOE action is looking less likely right now, we still think bank rate will be cut further and we anticipate an aggressive fiscal response in the Autumn Budget Statement.”