Recent S&P Global flash Purchasing Managers’ Index (PMI) data for August paints a mixed, albeit cautious, picture of economic activity across the Eurozone and the United Kingdom. While both regions exhibited continued expansion, underlying vulnerabilities and sector-specific challenges temper the optimism, signaling an ongoing journey towards more robust recovery.
- The Eurozone’s composite PMI rose to 51.1, marking the fastest business activity expansion since May 2024.
- Manufacturing in the Eurozone saw its first growth since June 2022, signaling an end to a prolonged downturn.
- Germany recorded its third consecutive monthly increase in overall output, largely driven by manufacturing.
- The UK’s composite PMI reached a one-year high of 53.0, indicating accelerated economic growth.
- Despite positive trends, both regions face headwinds, including persistent inflation and fragile underlying demand.
- The ECB has room for further interest rate cuts, while the Bank of England’s ability to stimulate is constrained by inflation.
Eurozone Economic Activity and Outlook
The Eurozone’s composite PMI, encompassing both services and manufacturing, rose to 51.1 in August, an increase of 0.2 points from July. This marks the fastest pace of business activity expansion since May 2024. This uplift suggests a 0.2% quarterly GDP growth rate for August, aligning with expectations and following a 0.1% increase in the second quarter. Despite this positive trend, S&P Global noted that “the pace of expansion remained frustratingly sluggish.” The primary driver of this renewed activity was a rise in new orders, the first such increase in 15 months for both the manufacturing and services sectors.
Eurozone Sectoral and National Insights
A significant turnaround was observed in the manufacturing sector, with its flash PMI rising to 50.5 in August from 49.8 in July. This marks the first growth recorded since June 2022, signaling an end to a prolonged post-pandemic downturn. Conversely, the services PMI saw a slight dip but held firm above the 50-point growth threshold at 50.7, indicating continued expansion.
At the national level, France’s economy showed signs of stabilization, with its PMIs nearing the 50-point mark, indicating modest GDP growth in the third quarter. Germany, the bloc’s largest economy, recorded its third consecutive monthly increase in overall output during August, largely driven by manufacturing. However, its service sector performance remained muted. S&P Global highlighted that this overall upturn was Germany’s fastest since March, suggesting the country is on track for modest GDP growth in the third quarter. Elsewhere, other Eurozone economies continued to outperform France and Germany but, as noted by Barclays in its analysis, experienced some loss of momentum in August, particularly in their services sectors.
On the labor front, August’s flash PMI indicated another small rise in eurozone employment. These readings for business activity, prices, and employment suggest that the European Central Bank (ECB) may have further room to cut key interest rates. However, a slight uplift in services inflation presents a persistent risk. The ECB has consistently moved to ease monetary policy, having implemented eight 25-basis-point reductions since June 2024, lowering the deposit rate to 2%.
United Kingdom Economic Performance
Separately, the flash UK PMI survey for August indicated an acceleration in the pace of economic growth over the summer, building on a sluggish spring. The composite PMI reached 53.0, up from 51.5 in July, marking a one-year high and indicating a 0.3% quarterly GDP growth rate. This growth was predominantly driven by the robust services sector, while manufacturing output, though falling, did so only marginally, suggesting a move towards stabilization after a period of steep declines.
However, the UK economy faces headwinds. Underlying demand remains fragile, compounded by concerns over recent government policy shifts and broader geopolitical uncertainties. Persistent challenges include declining goods exports and ongoing payroll reductions. Furthermore, entrenched inflation severely constrains the Bank of England’s ability to cut interest rates and stimulate the economy this year.
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