PMIs show stagnant outlook for UK and Europe

Euro Area 

A modest increase in the Eurozone’s business activity failed to provide a significant boost to EUR/USD, but investors seemingly looked at it with a kinder eye when they contrasted the Eurozone data with that from the UK. 

The numbers were mixed. The Eurozone’s two largest economies moved in opposite directions. Germany’s business activity shifted into a higher gear and was the joint-most robust since May 2023. France, on the other hand, disappointed with the composite index pointing to faster contraction – perhaps a sign that political turmoil is bad for business. 

Services activity in the bloc edged up nicely, lifting the composite measure to a 16-month high. Conversely, manufacturing PMI slumped, breaking a steady string of increases that lifted it above the key level 50 last month. Overall, data confirms that the Eurozone economy is expanding, but stagnant new orders suggest the prospects are not necessarily better.

UK

As if there weren’t enough bad news already, the September PMI data provides further confirmation of the troubling state of the British economy. Indices fell across the board, with a decline in the key services PMI from 54.2 to 51.9 particularly discouraging. This, combined with a sharp decline in the manufacturing output index, pushed the composite PMI below a comparable index for the Euro Area – a rarity in recent years. 

Some normalisation in price pressures seen in the data is hardly a consolation.

Given concerns over higher taxes, the outlook for the British economy in the near term is mired in uncertainty and not very encouraging.

The sell-off wasn’t massive, but fresh economic concerns are weighing on the pound, which is underperforming most of its G10 peers today.