Election nerves cast shadow over UK economy - PMI

(Sharecast News) - Growth in the UK private sector unexpectedly slowed in June, a closely-watched survey showed on Friday, as uncertainty around the general election weighed on business.

According to flash data from S&P Global, the UK manufacturing output index hit a 26-month high, at 54.2, while the manufacturing PMI ticked up 0.2 points to an above-forecast 51.4.

However, in contrast the UK services PMI business activity index fell sharply, hitting a surprise seven-month low of 51.2 compared to 52.9 a month previously.

Respondents said that while higher customer demand had boosted activity levels, it had been partly offset by spending decisions being put on hold until after the election on 4 July.

As a result, the composite output index fell from 53.0 to 51.7, a seven-month low. Analysts had expected the index to be unchanged month-on-month.

The composite index is calculated by weighting together comparable manufacturing and services indices.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "Flash PMI data for June signal a slowing in the pace of economic growth, indicating that GDP is now growing at a sluggish quarterly rate of just over 0.1%.

"The slowdown in part reflects uncertainty around the business environment in the lead up to the general election, with many firms seeing a hiatus in decision making pending clarity on various policies."

Peter Arnold, UK chief economist at EY, said: "The PMIs can be volatile from month-to-month, so June's balance should be treated with a degree of caution. Indeed, the second quarter average was the same as the first quarter.

"But the EY Item Club thinks quarter-on-quarter growth will probably be slightly softer in the second quarter, partly due to four days of strike action planned in the healthcare sector for the end of [June]."

Surveys were sent to panels of around 650 manufacturers and 650 service providers, with data collected between 12 and 19 June.