UK private sector upturn points to stronger economy

Bank of England rate decision due

City of London: “The survey data indicate an encouraging start to 2020 for the UK economy.”

City of London: “The survey data indicate an encouraging start to 2020 for the UK economy.”

 

UK private sector activity improved more than expected in January thanks to solid services growth ahead of the Bank of England rate decision at the end of the month.

The flash IHS Markit/Cips purchasing manager index for services and manufacturing - or the composite index - rose to 52.4 in January, from 49.3 in the previous month. The figure is higher than the 50.6 forecast by economists polled by Reuters and above the 50 line separating expansion from contraction.

“The survey data indicate an encouraging start to 2020 for the UK economy,” said Chris Williamson, chief business economist at IHS Markit. “Output grew at the fastest rate for 16 months amid rising demand for both manufacturing and services, suggesting business is rebounding after declines seen late last year.”

The PMIs provide the most comprehensive measure of economic activity for the post-election period ahead of the BoE policy interest rate decision on January 30. Members of the Monetary Policy Committee have signalled that they will consider survey results as they decide whether to cut rates to stimulate the economy.

Market odds of a rate cut, based on swaps trading, at the next meeting dropped to 50.9 per cent from 56.2 per cent, following Friday’s data release, according to Reuters calculations. The pound also strengthened 0.2 per cent against the dollar before surrendering those gains in choppy trading.

“We think that the large rebound in January’s flash activity PMI will be enough to prevent the MPC from cutting interest rates at next Thursday’s meeting,” said Paul Dales, Chief UK Economist at Capital Economics. “The next move in rates may actually be up, albeit not until 2021.”

The flash IHS Markit/Cips purchasing manager index for services rose to 52.9 in January, from 50 in December and better than analysts’ expectations of 51. Services account for about 80 per cent of total output.

The PMI index for manufacturing was also up to 49.8 in January from 47.5 in December, but it remains below the 50 mark.

The flash estimate is based on around 85 per cent of total PMI survey responses and it is released about 10 days before the final results. – Copyright The Financial Times Limited 2020