UK services had a very good March. At 58.9 the sector PMI was up more than 2 points versus its February level and at its highest mark since August 2014.
March's improvement was broad-based and driven by a healthy and twenty-seventh consecutive monthly increase in new orders. Job creation eased to a 3-month low but remained strong and outstanding business saw its steepest rise since last September. Meantime, despite signs of building wage pressure, input cost inflation remained muted, in large part due to the strength of the pound. Service provider charges rose but only at a fractional rate. Against this very positive backdrop, business optimism about the year ahead climbed to its highest level since May 2014.
The average first quarter service sector PMI stands at 57.6, up from 56.9 in the closing three months of 2014 and potentially indicative of real GDP growth of around 0.7 percent. If accurate, the likelihood of any interest rate cut in 2015 should remain minimal. With inflation still largely dormant, tightening risks should similarly be quite limited but amidst increasing signs of accelerating wages, a hike in Bank Rate before year-end is at least a possibility.
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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