UK GDP outlook remains fragile, EMU inflation disappoints

Summary:

• Services PMI rose more than expected in December, the details do not justify undue optimism though

• GDP may have seen just mediocre growth in the last three months of 2018

• EMU inflation misses expectations in December

• EURGBP gets back from the peak reached earlier this week

A series of UK PMIs bode little growth in Q4

The UK economy may have grown only modestly in the fourth quarter of 2018. Source: Markit

UK services PMI surprised slightly to the upside in December rising more than anticipated and reaching 51.2, up from 50.4 in November. This combined with quite positive readings concerning construction and manufacturing yielded a rise in the composite gauge to 51.4 from a revised value of 50.8 matching economists’ forecasts. The details of today’s reading do not look well though. First and foremost, new work picked up only slightly from the 28-month low seen in November as respondents cited headwinds from political uncertainty and downbeat projections among clients in relation to domestic economic growth in 2019, the Markit wrote. Softer business activity led to weaker employment growth across the entire service sector last month. On the other hand, surveyed managers still reported the tight labour market as the obstacle in recruiting skilled staff. A input costs component jumped chiefly due to higher wages but greater food prices and higher costs for imported items also contributed to this increase. Thus, price pressure in the UK’s dominant sector remains subdued signalling no impending need for the BoE to hike rates. The same conclusions might be drawn from the two past surveys releases earlier this week. Despite the upbeat tone of three PMIs for December the UK economy may have grown only modestly (0.1-0.2% QoQ) in the final three months of 2018. Looking forward, the growth outlook also looks fragile being dimmed by lingering Brexit uncertainty acting like a brake on investment spending.

EMU inflation slows down markedly

Price growth in the Eurozone economy slowed down sharply in December on stumbling oil prices and reached its eight-month low, according to the data released by Eurostat. Headline CPI grew 1.6% YoY, down from 1.9% YoY seen in November. Having said that, core inflation, which takes out volatile items including energy prices, stayed unchanged at 1% reflecting that domestic price pressure remain quite muted but stable. Let us remind that the ECB decided to end its bond buying programme last month but signalled that it would continue investing proceedings from maturing bonds beyond the date when the first rate hike occured.

Technical view