The latest flash PMIs for Europe and the UK have provided early insights into the impact of the ongoing energy shock on economic growth. While the headline indices were slightly below expectations, the data reveals a more concerning picture beneath the surface. Input prices across regions and sectors have seen a sharp increase, while expectations components have taken a clear hit. This trend is consistent with historical parallels and other recent survey data, suggesting that the activity hit from the energy shock may be more pronounced than initially thought.

The starting point in Europe is also crucial in interpreting today’s numbers and those in the coming months. The forward-looking components of the PMIs had shown improvement in prior months, which was consistent with a cyclical upturn in Europe and a boost from firmer fiscal spending. However, the recent deterioration in the expectations components suggests that the energy shock may be having a more significant impact on growth than previously anticipated.

The sharp increase in input prices across regions and sectors is a cause for concern, as it could lead to higher production costs and potentially slow down economic activity. The drop-off in expectations components is also a red flag, as it may indicate that businesses and consumers are becoming more pessimistic about the near-term outlook.