U.K. services PMI send a note of caution to BoE

Note: This section contains information in English only.
Source: Dukascopy Bank SA
"The signs from the PMI surveys this week are that strong activity is feeding through into higher domestic prices, but it is debatable this is at a pace to raise anxieties."
- David Tinsley, UK economist at BNP Paribas

The Sterling retreated from its 27-month high and was traded at 1.6364 on Wednesday after the data from Markit showed Britain's dominant services sector continued its rapid growth last month, albeit at a slightly slower pace. A gauge of activity in the key services sector, which accounts for almost 78% of the overall economy, slowed to 60, below October's 16-year high of 62.5 and missing market's predictions of 62. Despite the disappointment, the level is still notably above the 50 threshold, which in turn indicates expansion of the sector.

Rising demand for property, goods and services forced companies to hire more staff. Firms are still struggling with work backlogs that are prompting them to recruit more employees, and not just on a temporary basis. In the majority of cases where people were taken on to service current workloads, respondents mentioned positive expectations for activity and demand as the main reasons for stronger hiring. Markit currently projects the economy to expand by more than 1% in the final quarter. This would represent a 0.2% acceleration from the 0.8% growth registered in the preceding quarter. While the strong data from all three pillars of the economy are representing another piece of positive news for the government and central bank, weaker-than-expected services PMI is suggesting there is still no room for complacency.
© Dukascopy Bank SA

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