New PMI data could crystalise market bets on continued rate rises

PMI data from S&P Global and the Chartered Institute of Procurement and Supply today could crystalise market bets on the Bank of England continuing to raise interest rates.

The final purchasing managers’ indexes will alarm economists at Threadneedle Street if they confirm that strong wage inflation is contributing to service providers seeing the fastest rise in their cost burdens for three months, analysts at Oxford Economics said.

“A similar outcome in the final survey for May would further increase the likelihood of the Monetary Policy Committee going for another rise in interest rates when it meets later this month,” they added. The services PMI is tipped to stay far above the 50-point growth threshold at 55.1. Manufacturing output is lagging far behind services activity, mainly due to the sector being more sensitive to interest rate changes and weak international demand.

While inflation fell from 10.1 per cent to 8.7 per cent last month, core inflation jumped from 6.2 per cent to 6.8 per cent. The Bank has now hiked rates to 4.5 per cent, and financial markets expect Bank governor Andrew Bailey and co to send them to 5.5 per cent.

Pound sterling last week was on track to clock its best week against the US dollar in around six months, strengthening about 1.5 per cent, driven by investors hiking their peak interest rate expectations, though that run lost steam on Friday.

London’s FTSE 100 fared okay, adding around half a percentage point last week to finish at 7,607.29 points. The mid-cap FTSE 250 pumped up 1.71 per cent to 19,149.31 points.

First Group is set to see operating profits of £144.4m this week, after analysts upgraded their 2023 full year estimates in March on the back of strong demand. Since then the loss of the TPE rail franchise in May will affect 2024 forecasts but Peel Hunt expects “a further recovery in bus margins and the benefits of the continuing government support”. Analysts maintained their ‘Buy’ rating.

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Wizz Air is set to report big losses this week in its full year results, with last year's supply chain issues and soaring jet fuel costs made worse by low levels of hedging. But Peel Hunt analysts think “the sharp decline in jet fuel price in the last few months” should help the carrier. A jump in traffic figures will also help the firm.

Peel Hunt kept its ‘Buy’ rating.