EU and UK PMIs show the resilience narrative is over
Today’s flash PMI round has delivered a clean verdict: April was a false dawn, and May is a contraction.
Both the eurozone and the UK printed composite readings well below 50 for the first time in over a year, with services, the larger and more domestically sensitive component, collapsing to multi-year lows in both regions. The Middle East energy shock is destroying demand faster than it is generating inflation expectations, and in the UK, a domestic political confidence shock is compounding the picture.
For EUR and GBP, the stagflationary bind facing both central banks has tightened sharply. Neither currency has a clean story today.
The eurozone numbers are bad in aggregate and alarming in detail. The EZ composite came in at 47.5, even below the 48.8 consensus and a 31-month low. Services collapsed to a 63-month low, the weakest reading since February 2021, as higher energy costs eroded consumer demand rather than simply raising prices. Manufacturing held in expansion at 51.4, but new orders moved back into contraction alongside services. Precautionary stock-building that propped up April's headline is fading, exactly as we anticipated. France is the most acute pressure point: the French composite printed at 43.5, a 66-month low not seen since November 2020, with services at 42.9 and new orders falling at the sharpest rate since then. Input costs across the region rose to a three-and-a-half-year high for the seventh consecutive month, supply chain delays lengthened to their worst level in nearly four years, and employment fell at its fastest pace since August 2013 outside the pandemic. Germany was a relative outperformer only in the narrowest sense. The composite at 48.6 was broadly in line with consensus, but manufacturing crossed back below 50, factory orders fell for the first time since December, and job losses accelerated to the fastest in over a year and a half.
The ECB faces a region slipping into recession while inflation heads toward 4%. That is not a comfortable platform from which to deliver further hikes.
The UK data is arguably an even sharper shock. The composite fell from 52.6 to 48.5 in a single month — a 4.1-point collapse. Services dropped from 52.7 to 47.9, a 64-month low that, outside the pandemic, represents the weakest reading since July 2016. The survey text is explicit: firms cited the Middle East war as the primary driver, but domestic political uncertainty was independently flagged as a co-driver of declines in spending, hiring, and investment. This is not a marginal sentiment effect, rather, it is showing up directly in new orders, employment and forward expectations, business optimism is at its lowest since April 2025. Manufacturing held only on customer front-loading ahead of price rises and supply disruptions. Employment fell for the twentieth consecutive month.
The economy contracted at a 0.2% quarterly rate in May, matching the eurozone. That is a striking convergence given where the UK composite stood just four weeks ago.
The FX implications are direct. For EUR, today's data removes the residual case for activity-side support alongside ECB hawkishness. The June hike is still 87% priced, but the market will quickly ask how many the ECB can realistically deliver into a contracting economy with worsening supply chain conditions and recession language appearing in the official survey commentary. That question caps EUR rallies and keeps a neutral bias appropriate, with the June meeting now the critical juncture. For sterling, the picture is even worse. The composite collapse and explicit political uncertainty premium in the services data add to the GBP-negative factors and go way beyond an energy shock.