UK Flash Composite PMI (Dec) 51.7 vs. Exp. 50.9 (Prev. 50.7)

• “The UK economy continues to dodge recession, with growth picking up some momentum at the end of the year to suggest that GDP stagnated over the fourth quarter as a whole. While employment meanwhile fell for a fourth month, the decline was only marginal and not indicative of any material rise in unemployment.


• This divergence is also reflected in inflation pressures, with falling prices again evident in the goods producing sector while service providers report persistent elevated inflationary pressures, often linked to wage growth. The resulting signal is one of inflation remaining stubbornly above 3% in the coming months.


• The service sector’s resilience and sticky inflation picture will add to speculation that it’s too early for the Bank of England to be talking about cutting interest rates, and will add fuel to some policymakers’ calls for further rate hikes. However, the fear is that the tentative nature of growth in December, and the impetus from looser financial conditions, means that fears of further policy tightening could tip the economy back into decline.”

via HCOB

Reaction details (09:35)

• Data which pressured Gilts Mar'24 down from 100.90 to 100.65 while Cable trimmed initial losses to trade around flat.

Analysis details (09:45)

• The release points to a slight increase in momentum at year-end with the UK economy set to stagnate in contrast to the slight contraction expected for the EZ. Services and Manufacturing continue to diverge with Services very much propping up the UK economy though overall employment once again fell for the fourth consecutive month, but not by an amount S&P judge will lift the unemployment rate materially.


• On inflation, the Services and Manufacturing divergence continues with inflationary pressures again evident in the largest sector and "often linked to wage growth". Growth which is judged to be "persistent" and will serve to reinforce the calls for further tightening by the MPCs three dissenting hawks and potentially delay the point at which rate cuts are discussed and/or when we see known dove-Dhingra begin to vote for a reduction.


• Overall, the data underscores the BoE's assessment from the December gathering that it is "too early to conclude that services price inflation and pay growth were on a firmly downward path".

15 Dec 2023 - 09:45- Fixed IncomeData- Source: Newswires