Following its surprisingly sharp slowdown in September the UK services sector continued to pick-up speed in November. At 55.9, the PMI was up a full point from October, above market expectations and at a 4-month high.
Incoming new orders also saw their fastest growth since July but the increase in backlogs was less marked than at the start of the quarter and another rise in employment was shallower than last time. That said, while headcount growth was the slowest in three months, it remained historically robust. Business optimism about the year ahead stayed positive and little different from October's two-and-a-half year low.
Input costs climbed on the back of salary pressures in part linked to the forthcoming National Living Wage and inflation edged up to a 4-month high. However, it also stayed comfortably short of its historical norm. As a result, service provider charges only rose at a fractional pace.
Despite a somewhat mixed report, the overall impression from today's data is a generally firm service sector expanding at a healthy rate, albeit less sharply than seen earlier in the year. Crucially, inflationary pressures still seem to be quite light and the implications of what looks likely to be around a 0.6 percent quarterly gain in real GDP, should not trouble the BoE MPC. Respectable, non-inflationary growth continues to be the order of the day.
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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