Nomura notes services growth offset manufacturing weakness but rising input and output prices signal inflation risks for the BoE.
UK composite output PMI increased to 52.5 in August, driven by a rebound in services that countered a decline in manufacturing. The services sector’s expansion lifted the overall index, while GfK consumer confidence hit a two-year high at -14, bolstering economic activity.
Despite manufacturing output weakening, composite input and output price indices rose further in August. The input price index climbed 1.4 points to 67.2, and the output price index gained 0.7 points to 57.1, both exceeding February levels. These increases highlight persistent inflationary pressures in the services sector.
Nomura maintains its forecast for no Bank of England rate change this year but warns of upside risks if price pressures persist. Policymakers will closely monitor forward-looking indicators, including the BoE’s Decision Maker Panel survey, to assess second-round inflation effects.