UK services enjoyed a good start to 2015. At 57.2, not only was the sector PMI easily far enough above 50 to signal a solid advance in business activity but it was also a tidy 1.4 points above its December reading.
New business expanded at a marked and accelerated pace in January with nearly 30 percent of the survey panel noting a rise in new work, particularly from the domestic market. Pressure on capacity was signalled by a twenty-second consecutive increase in backlogs despite employment growth that hit the joint second highest in the survey's history.
Input price inflation continued to drop on the back of the weaker oil market and posted its lowest rate since June 2009 with lower fuel and raw material costs helping to offset a pick-up in wages and salaries. Output price inflation also declined and registered just a marginal pace despite indications that some firms are becoming more confident about testing the price sensitivity of current market conditions. Against this backdrop, business confidence remained steady with almost 50 percent of the survey panel anticipating an increase in activity over the coming twelve months.
With the PMIs for manufacturing (53.0) and construction (57.2) both signalling a pick-up in the pace of business activity the composite output index registered a solid 56.9 which should be consistent with a quarterly increase in real GDP of around the 0.5 percent mark. If so, the signs would be that the UK economy is achieving a soft landing following unsustainably rapid rates of growth over the last year or so. In turn, this should put a smile on the face of the BoE MPC and further boost the likelihood of Bank Rate still being at 0.5 percent in December.
The Markit/CIPS UK Services PMI covers transport & communication, financial intermediation, business services, personal services, computing & IT and hotels & restaurants.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM non-manufacturing index in the U.S. and the Markit Services PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The Markit PMI services data give a detailed look at the services sector, how busy it is and where things are headed. The indexes are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.
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