Economy starts Q4 with a whimper rather than a bang

The large fall in the PMIs in October suggests that the economy slowed sharply at the start of Q4. Admittedly, some slowdown from rolling three-month GDP growth of 0.7% in July and August always looked likely. Indeed, much of that strength can be put down to a boost to consumer-facing services from fine summer weather and the football World Cup. Meanwhile, the construction sector was catching up on work delayed due to adverse weather at the start of the year. Nonetheless, the magnitude of the falls in the manufacturing and services PMI in October came as a surprise, leaving the all-sector PMI consistent with quarterly GDP growth of just 0.2%, down from a likely 0.6% in Q3. However, we wouldn’t read too much into the latest survey readings. While the Bank of England reports that firms are growing increasingly concerned about Brexit, it would not be the first time that the PMIs have been affected adversely by Brexit worries only for the hard data to hold up well. And the CBI’s Growth Indicator – another timely gauge of economic activity – held steady in October, consistent with quarterly growth of about 0.4%.