Forecast-beating Markit/CIPS PMI results boost hopes economy got off to steady start in second quarter
Hopes that Britain’s economy could be stabilising have been bolstered by data showing that services companies posted their strongest performance last month since the Olympics.
Activity beat expectations with its strongest growth for eight months in the closely watched Markit/CIPS PMI survey of the UK’s services sector, which accounts for 75% of GDP.
At 52.9 the index for April was above economists’ forecastsand well clear of the 50-mark that separates growth from contraction. The PMI data came as Olli Rehn, European commissioner for economic and monetary affairs, warned that Britain cannot risk a fiscal stimulus programme because of high debt levels. “There is really no case for a discretionary fiscal loosening in the UK,” he said.
The services report – which covers businesses such as transport, hotels and computing – followed forecast-beating results in the PMI surveys for the smaller construction and manufacturing sectors earlier this week, which has fanned hopes that the UK economy made a steady start in the second quarter of the year.
“The three UK PMI surveys collectively signalled the fastest rate of economic growth for eight months in April. The improvement reflected a strengthening upturn in service sector business activity, a return to marginal growth in the manufacturing sector and a near-stabilisation of construction,” said Chris Williamson, chief economist at Markit.
“The surveys provide the first evidence that the faster than expected economic growth seen in the first quarter persisted at the start of the second quarter,” he added, but noted the rate of GDP growth signalled by the PMIs “remains frustratingly modest”.
Official data last month suggests that after contracting at the end of 2012 the UK economy grew again in the first quarter of this year, beating expectations with a 0.3% expansion. The growth was eked out against the backdrop of unusually harsh weather and removed most fears that the UK had slipped back into recession.
The services report, which covers a wide range of businesses such as transport, hotels and computing, showed the strongest rise in new work in almost a year as companies cited new products, better weather and increased overseas demand. There was also “modest” jobs growth in the sector, the report said.
Economists said the stronger-than-expected activity reduced the chances the Bank of England would step in with more stimulus. The Banks’s nine-member monetary policy committee (MPC) meets next week to decide whether to inject more electronic cash into the economy by extending its programme of quantitative easing (QE).
In further good news for the UK economy, data showed that personal and company insolvencies fell to a five-year low in the first quarter of the year. The number of people declared insolvent in England and Wales fell to 25,006 in the first three months of the year according to the Insolvency Service, 12.9% lower compared with a year earlier.
Company liquidations meanwhile fell to 3,678, 18% lower than the first quarter of 2012. They were the lowest since the financial crisis took hold in 2008.
“Overall the trio of good PMIs this week largely draw the line under the discussion over any more QE from the MPC next week,” said David Tinsley at BNP Paribas.
“It was going to be pretty hard for the three voting for more asset purchases to convince the rest in any case, with a GDP print for the first quarter very much in line with February inflation report forecasts.”
Warnings remained, however, that the UK faces many headwinds, including a squeeze on household finances and an uncertain global economic outlook.
The services report also showed business confidence remained subdued, noted Martin Beck at Capital Economics. “An improvement in April’s CIPS/Markit report on services joined the upticks already seen in the manufacturing and construction surveys in suggesting the second quarter has got off to a good start,” eh said. “But even with these positive signs, there is still little indication of the economy breaking out of an environment of fairly insipid growth.”