00:00UK September composite PMI falling to 51.7. That's against a forecast of 52. So that's the
00:07composite number. The services number coming in at 51.7, exactly the same reading. That is again
00:13below the prior reading and a little under the estimate. And on manufacturing, we're at 52.
00:19So not far from the 51.5 survey, a little above it. We see a bit of movement on the
00:25pound with
00:26that in mind, a little bit of an uptick on the pound. The dollar has generally been in the
00:31driving seat over the last few days against both the euro and the pound. Let's get some analysis
00:37of the UK story then. Dan Hanson joins us, chief UK economist at Bloomberg Economics. Dan, good
00:43morning. Your first take, what stands out to you here in these numbers? I mean, as you've just said
00:50there, a little bit weaker than expected, not massively so. I mean, if you look at the PMI
00:53over the past three months, if you take this data into consideration, it's pointing to growth of
00:58around 0.2 for the third quarter. And I remember we had a really strong first half of the year
01:03in
01:03the UK. We had a 0.6 and a 0.4. What I would say is the PMI has been
01:07downbeat over the course of this
01:10year. It's underestimated growth. So we should bear that in mind. I think the thing, just coming to Tom
01:15Reese's story on the terminal here, the thing that's going to catch the eye of policymakers is maybe not
01:22the output side of things, but the prices side of things. So we've had another pickup in the prices
01:27balances, according to the survey. And of course, that's against the backdrop of, yes, we've had
01:32some falls in energy prices over the past few days. But the broader story since sort of the summer
01:38is that we've had this quite big rise in energy prices. And that we heard last week from the Bank
01:43of England is the thing that's really worrying them. Yes, that is interesting. I mean, I know we're
01:47going to focus on the UK, but it's interesting in the context of the strength we saw in the services
01:51side of the economy in Germany and in France versus expectations much better than what was
01:56expected on the services side, despite the fact that these energy prices have been going higher.
02:00And that is the narrative. I wonder where that leaves us. Yeah, explain that.
02:08I think the way you can explain it is to say that in both the Eurozone and the UK, one
02:14bit of the
02:15puzzle, one bit of the growth puzzle that had been missing up until now is that consumers hadn't
02:19been spending much money and they've been sitting on quite significant. So the saving rate in both
02:24economies is high. So one thing with prices going up, the growth continuing to trundle along,
02:31that tells you that consumers appear to be happy to dip into those savings a little bit to keep
02:36spending moving along. Now, of course, as we move into the winter and energy prices are high,
02:41inflation is probably going to go to around 4% in both economies. The question is, will that continue?
02:47And obviously, interestingly, in the UK, it looks like there have been signs of slowing based on the
02:52PMI. In the Eurozone, we had a stronger reading. So that's an interesting divergence. But you're
02:57right, up until now, the interesting story for both economies has been one of resilience. We haven't
03:02had that slowdown in economic growth that I think both central banks are probably hoping to see to
03:07make the inflation fight a little bit easier. I do wonder what kind of, I mean, let's just say the
03:11weather was unusual over the summer, which would be to understate it slightly, would it? Maybe it's
03:16the new usual, but it's certainly been. It was very unusual. I wonder what difference that made.
03:20You talk about divergence. Are we still set for divergence in policy from central banks? So
03:24the ECB has been hiking. The Bank of England has not. But the latest signaling from the Bank of
03:29England was that's setting us up for hikes to come? I think so. I think, you know, if energy prices
03:35stay, obviously, they've been falling recently. And that could make things quite interesting over the
03:39next six weeks. But if, say, we stay around current levels, I think they will go in November,
03:44the Bank of England. Our Eurozone team think that the ECB isn't finished hiking yet either. They see
03:50a hike in December. So ultimately, it comes down to where both central banks started. The Bank of
03:59England started with policy probably a little bit restrictive. So it had a bit more time to assess
04:03the shock. But the longer the shock persists, and the longer energy prices stay elevated,
04:10the argument for doing something gets stronger and stronger. And I think that's where we're moving
04:14to now. And even if it's billed as an insurance hike, as against the idea that inflation might be,
04:20we don't think it's going to be persistent, but it might be. So we're going to take out some
04:23insurance. I think that's the narrative that the Bank will go with moving into November. Of course,
04:28if we get a massive fall in energy prices, I'm going to caveat it and say it could all change
04:33again. But as things stand... We're still not far from $100 a barrel. So even if it's been
04:37moving downwards. Quite. And actually, the most important thing for both economies isn't really
04:42oil. It's gas. It's where the action is.
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