UK services growth slowed unexpectedly rapidly in September. At 53.3, the sector PMI fell fully 2.3 points from its August level to stand at its weakest mark since April 2013.
The surprisingly sharp deceleration reflected a marked drop in new business growth which declined for the fifth time in six months to hit a 29-month low. Even so, new orders were still strong enough to secure another increase in backlogs and business expectations, despite touching a 13-month trough, remained in line with a solid overall rate of expansion. Indeed, headcount was up markedly and at its fastest pace since June to extend the current sequence of increases to thirty-three months.
Meantime, input costs rose slightly more quickly than in August on the back of stronger salaries but stayed soft in the context of historic survey data. Similarly, service provider charges continued to rise only marginally.
If today's survey is to be believed, UK real GDP growth was somewhere close to the 0.5 percent mark in the quarter just ended. However, with services apparently slowing significantly during the period, the chances are that the economy will begin the new quarter with a marked loss of momentum. Construction is still booming but manufacturing is expanding only sluggishly and inflation pressures are still seemingly limited. Against this backdrop, the majority of the BoE MPC should be happy to leave Bank Rate at 0.5 percent possibly well into next year.
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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