UK services sector improved to its highest level since September 2018, January
figures show. This was more than initially estimated.
Recent survey results show the IHS/Markit CIPS purchasing managers’ index (PMI) rose to 53.9 from 50.0 In December, coming in above the initial estimate of 52.9 and marking the highest level for 16 months.
Tim Moore, economics associate director at IHS Markit, said:
“January’s PMI surveys give a clear signal that the UK economy has picked up since the general election, as a diminishing headwind from political uncertainty translated into rising business and consumer spending. We maintain our nowcast of UK GDP rising by approximately 0.2% in the first quarter of 2020, which represents an improvement on the sluggish conditions seen at the end of last year.
“A solid return to growth in the services sector was the main factor behind the recovery in the UK economy, with survey respondents commenting that a rebound in sales enquiries had quickly translated into rising workloads so far this year.”
Sterling a got a boost from the data, rising 0.3% against the dollar to 1.3064 and 0.4% versus the euro to 1.1850.
Ruth Gregory, senior UK economist at Capital Economics, said:
“January’s all-sector PMI provides the clearest sign yet that the economy has turned a corner at the start of the year. The upward revision to the IHS/Markit services PMI from the flash estimate of 52.9 to 53.9 was well above the consensus forecast of 52.9 and meant that the rise from December’s 50.0 was the biggest since the immediate dip after the EU referendum was reversed in August 2016.”
“The PMI now points to quarterly growth in services output of about 0.5%, a big improvement on November’s 0.1% 3m/3m gain. The rest of the services survey was just as upbeat, with the new orders and future activity balances both rising sharply.”
“With the manufacturing and construction surveys also rebounding in January, the all-sector PMI picked up from 48.9 to 52.8, a level consistent with a 0.3% q/q expansion in GDP in Q1, up from a probable 0.1% q/q decline in Q4.”
“What matters now is if that actually happens. The rebound might not be quite that strong. But even if the PMIs prove a little optimistic, it looks a safe bet that the economy started to grow again at the start of this year. Like the Bank of England, we envisage GDP growth rising to +0.2% q/q in Q1. This and the prospect of a further lift to growth from fiscal policy will probably be enough to keep the MPC on hold this year and prompt rates to rise to 1.00% by the end of 2021.”
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