Britain’s economy has lost some of its buoyancy but still seems likely to avoid a double-dip recession, economists concluded after the release of a key survey of the services sector.
The Markit purchasing managers’ index survey of the services sector fell from 56 in January to 53.8 in February, the lowest since November but nonetheless consistent with healthy expansion. A reading above 50 signals expansion and a reading below 50 a contraction. The PMI sister survey of the manufacturing sector has followed a similar pattern this year.
David Tinsley, an economist at BNP Paribas, said: “These indicators are easily strong enough for the UK not to experience a technical recession, though it will be critical that the February declines do not signal the start of a renewed weakening trend.”
The PMI services survey is unofficial and does not always tally perfectly with official data but economists follow it closely because it gives the timeliest indication of what is happening in the sector that accounts for 76 per cent of Britain’s gross domestic product. The Bank of England’s Monetary Policy Committee is also widely believed to put weight on the survey.
According to the PMI, growth in new business slowed last month, with the sub-index falling from 55 to 52.4. Companies also cut their prices, suggesting that they could be discounting to bring in revenue, and employment growth levelled off. However, companies’ expectations for the future climbed to the highest in a year.
“That is typically a decent guide to where the headline index is headed one to two months ahead,” said Alan Clarke, an economist at Scotia Capital. “At best, it suggests that the fall may well be reversed in the next month or two.”
Taken together, the February PMI surveys of the services, manufacturing and building sectors suggest that GDP grew at a quarterly rate of about 0.3 per cent to 0.4 per cent in the first two months of the year, according to Chris Williamson, chief economist at Markit, the company that compiles the surveys.
“The PMIs therefore also suggest that the Bank of England’s Monetary Policy Committee will leave policy unchanged, at least until it reviews its growth and inflation outlook in the spring inflation report,” he said.
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