UK services still growing despite January PMI drop

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Investors can still take comfort from the state of the UK services sector in spite of its February dip, according to Hargreaves Lansdown’s senior economist.

Markit’s purchasing managers index shows the sector – which accounts for roughly three-quarters of UK GDP – fell slightly last month, from 54.5 to 53.3, while undershooting forecasts for a smaller decline to 54.2.

Yet Ben Brettell says a PMI reading above 50 shows the sector is still expanding, albeit at its slowest pace since September.

He says: “2017 looks set to be a relatively challenging year for the economy, with higher inflation and weaker pay growth likely to squeeze household budgets.

“This means consumer spending could slow in real terms. Today’s figure, along with the equivalent readings for the manufacturing and construction sectors, point to 0.4 per cent GDP growth in the first quarter.”

He says the survey shows that business confidence remains strong, and sentiment about the rest of the year was largely positive and the economic picture looks better than was expected given the UK’s decision to leave the EU.

“Nevertheless, with uncertainty still rife over how and when the UK will actually leave the EU, and survey data pointing to a modest slowing of activity, the Bank of England looks most unlikely to consider raising interest rates in the near to medium term.”