According to the new sector PMI survey, August was another good month for UK services. However, at 55.6, the PMI was nearly 2 points short of its July mark, weaker than expected and at its lowest level in some twenty-seven months.
The headline decline reflected the slowest rise in new orders since April 2013, although to put this into context, the gain was still broadly in line with the long-run average. Similarly, the rise in backlogs was down on July but employment growth remained strong and evenly accelerated versus the previous month. Business expectations eased to their lowest point since February but stayed historically firm with almost half of the survey panel anticipating higher workloads over the coming year.
Meantime, input cost inflation eased for the third month in a row despite some increase in wage pressures and a rise in service provider charges was only minimal.
Today's report should sit quite well with the BoE. The service sector cooled in August but still expanded at a healthy clip while inflation essentially moved sideways. As ever, wage developments will need watching closely but overall today's report offers little fresh for the BoE MPC's hawks to get their talons into.
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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