UK services had another good month in July. At 57.4 the sector PMI was slightly short of market expectations and 1.1 points below its June reading but still easily far enough above 50 to signal continued solid growth.
In fact, a rise in new orders exceeded that seen in June and was the largest since April although job creation, which was also firmly positive, slowed somewhat albeit remaining historically strong. Business expectations dipped to a five month low but were also still generally optimistic.
Meantime, higher wages were partly responsible for another increase in input costs in July but cost inflation slowed to a 3-month low. However, service provider charges saw their sharpest gain since February.
Overall today's results, if a little softer than expected, suggest that services continue to provide by far the principal support for the UK economic recovery. In fact, taken at face value, the latest figures point to quarterly real GDP growth of about 0.6 percent, which would be just a tick less than provisionally recorded in the second quarter. This will not surprise, or particularly, worry the BoE MPC but the policymakers will be keeping an increasingly wary eye on wages.
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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