UK service activity hits seven-month low
This morning, Markit PMI figures for UK services showed a slowing in services activity in January, at 53.3 from 58.8 – a seven-month low.
But the fact the UK services PMI is down from the 62.5 peak seen in October of last year is no reason to worry, says Berenberg’s Robert Wood.
When combined with a manufacturing PMI high above past averages and a booming construction sector, the reading merely signifies continued strong growth, says Wood.
Monetary policy is getting traction, employment is booming, and the UK’s main trading partner is moving further into expansionary territory. Business confidence is surging as a result, with services firms the most optimistic about future growth in nearly four years. That is translating into rising employment and plans for more investment.
Berenberg expect growth of 0.8 per cent quarter-on-quarter in the first quarter of this year and 3 per cent for 2014 as a whole.
Jeremy Cook of World First, which also predicts 0.8 per cent growth for the first quarter, has stressed that, although the pace of UK recover has slowed since the third quarter of last year, 2014 should bring strong levels of business-to-business service growth. But he adds:
Once again, I must express concern about ongoing weakness in consumer spending and the likelihood that existing pressure on wages exacerbating via inflation.
And when it comes to the outlook for monetary policy, Howard Archer of IHS Global Insight says:
The slight slowing in growth in January implied by the January purchasing managers’ surveys for January reinforces our belief that the Bank of England will not only keep interest rates at 0.50 per cent at the end of the MPC’s February meeting on Thursday, but also all through 2014 and very possibly well into 2015.
We anticipate that the Bank of England will want to give the economy as much chance as possible to establish broad-based growth and will hold off from raising interest rates for some considerable time to come despite current sharply falling unemployment assuming that there are no nasty inflation shocks.