UK: Alarming signals from service sector - ING

According to James Smith, Developed Markets Economist at ING, at face value, the latest UK services PMI looks very concerning.

Key Quotes

“The sharp fall from 54.5 to 51.7 means the index is now at its lowest since the immediate aftermath of the Brexit vote. But it seems cold, snowy weather, dubbed the ‘Beast from the East’ played a big role in this miss, with the Markit/CIPS press release littered with references to the torrid weather conditions seen through March.”

“In reality, this means that policymakers will likely choose to look through this latest data when they meet next in May. Instead, the recent acceleration in wage growth, coupled with the agreement of a post-Brexit transition period, will be what counts for policymakers. We continue to expect a rate hike in May, and markets seem to be pretty much on-board with this idea too.”

“But we still have our doubts that the Bank of England will be able to get away with a second rate hike later this year. Whilst we suspect this latest dip in the PMI will prove temporary, we don’t expect an imminent acceleration in economic growth either.”