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UK services firms defy expectations amid global economic worries

Britain’s services sector has remained unscathed, despite growing worries about the global economy last month. The Markit/CIPS services purchasing managers’ index (PMI) edged up to 55.6 in January, a level it has surpassed only once since July last year [1].

A PMI figure of more than 50 represents expansion, so the higher the better.

Britain’s economy is heavily reliant on the services sector, and is looking to expand by 0.6% in the first quarter of this year, rising from 0.5% growth in the last three months of 2015 [1].

The report comes ahead of the Bank of England announcing its interest rate decision on Thursday, where rates are expected to remain at 0.5%. Many economists are not anticipating a rate rise in the near future, while traders have pushed back their expectations to early 2018 [2].

Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, was not impressed with the latest numbers. “January’s services report indicates that the UK’s economic recovery is a shadow of its former self. The index remains well below its average of 57.2, recorded in the three previous years,” he said [2].

Dan Hanson, an Economist at Bloomberg Intelligence, said the Markit survey for January indicates the economy carried momentum into 2016, and may ease fears at the Bank of England that growth could slow sharply in 2016. “BI Economics continues to view the growth outlook as one of only moderation relative to the pace achieved across 2013 and 2014. Although the risks are still skewed to the downside,” he said [3].

Finance Minister George Osborne has warned that the country faces a “dangerous cocktail” of risks from the global economy. Many economists believe the government’s decision to hold a referendum on Britain’s EU membership may also hurt the economy by delaying investment decisions by companies [1].

 

[1] Reuters. ‘UK services firms defy global jitters, but risks lie ahead – PMI’. uk.reuters.com

[2] The Guardian. ‘UK service companies anxious about year ahead’. theguardian.com

[3] Bloomberg. ‘UK services firms start to crack as risks to growth mount’. bloomberg.com