UK economic recovery effectively on pause as PMIs dip - ING

James Smith, a Developed Markets economist at ING, notes that the latest UK purchasing managers indices, while still healthy, hint at an economic recovery that's stalling as Covid-19 cases rise. 

"The latest UK services PMI dipped noticeably in July, offering another hint that the recovery is effectively on pause as Covid-19 cases rise. The services index dipped to 57.8 from 62.4, while the manufacturing side was again held back by component shortages."

"Despite the rise in self-isolation rates over recent weeks, the effect on confidence has been less pronounced than we’d have expected - so far anyway."

"The major caveat when analysing much of this data is that it often pre-dates the noise surrounding self-isolation and the risk of getting pinged - much of which has really only emerged in the press over the past week or so. There’s little doubt this is rapidly amplifying worker shortages in a variety of sectors. And we may well begin to see more pronounced signs of people reducing socialisation over coming weeks."

"Still, the main takeaway when it comes to GDP is that this is very unlikely to be like the winter. In fact, we’re still likely to see a positive growth figure for the summer period. We’re expecting 1.5% growth in the third quarter (following roughly 5% in the second), including average monthly growth rates of 0.3% across June and August - though the risk there is clearly to the downside. Assuming the virus situation improves into the early autumn, then the economy will still likely be close (or maybe back) to pre-virus levels by the end of the year."

"However, there’s little doubt that further progress in the recovery really relies on Covid-19 prevalence falling again. It’s a reminder that the recovery is likely to be far from smooth."