UK Flash Composite PMI (Jan) 47.8 vs. Exp. 49.1 (Prev. 49.0)

• “Weaker than expected PMI numbers in January underscore the risk of the UK slipping into recession."


• "Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year."


• 
  "Jobs also continued to be lost as firms tightened their belts in the face of these headwinds, though many other firms reported being constrained by an ongoing lack of available labour."


• "There were some bright spots in the survey, including improved business expectations for the year ahead and a further cooling of inflationary pressures"

Via S&P Global

Reaction details (09:34)

• 
  GBP/USD was heading lower into the release and then extended the downside from 1.2377 to 1.2345, Mar'23 Gilts rose from 104.51 to 104.73. As the readings clearly show a grim start to the year for the UK economy, with the prospect of economic weakness perhaps a headwind to the BoE's tightening plans; particularly when coupled with the survey's observation of a "... further cooling of inflationary pressures".


• However, limited reaction was seen in BoE pricing for February on the release, which continues to show around a 70% chance of a 50bp hike with the remainder ascribed to a 25bp move.

Analysis details (09:41)

• Heading into the February BoE meeting, there has been heightened attention on the labour market as timely survey data has shown the labour market's tightness is beginning to ease. However, more dated hard-data remains hawkish. As such, the likes of HSBC believe it could take a "leap of faith" to pivot to 25bp before seeing evidence of tightness easing in the hard data.


• In terms of the January Flash PMI commentary, that is fairly balanced on the labour front and does not align itself explicitly with either argument and hence could potentially be used as a point of justification by the hawks to delay a pivot to 25bp.

24 Jan 2023 - 09:30- Fixed IncomeData- Source: Newswires