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United Kingdom PMI February 2018

United Kingdom: Services PMI rises in February, while manufacturing PMI dips

Growth in the UK services sector accelerated in February, with the IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) increasing from 53.0 in January to 54.5, marking the highest reading in four months. As a result, the indicator remains comfortably above the 50-point threshold that separates expansion from contraction, where it has been for 19 consecutive months.

February’s figure was driven by new orders which grew at the fastest pace since May 2017. Firms reported that greater business-to-business sales were behind the increase, on the back of solid global economic activity. The rate of hiring also rose in February in response to fatter order books, while backlogs of work edged up. On the price side, input price inflation slowed to an over one-year low, leading to a consequent slowdown in output price inflation.

Chris Williamson, Chief Business Economist at IHS Markit, commented on how the Central Bank could react to the figures: “With Bank of England policymakers sounding hawkish even following the January fall in the PMI to a one-and-a-half year low, the February upturn in the surveys (for construction and the service sector) surely leaves a May rate hike very much in play. The Bank seems keen to normalise interest rates even if output growth is below levels it would usually like to see when tightening policy.”

In contrast to the evolution of the services sector, manufacturing output growth slowed in February, with the IHS Markit/CIPS manufacturing PMI decreasing from 55.3 in January to 55.2 in February. However, the index remains well above the 50-point threshold that separates expansion from contraction in activity in the manufacturing sector, where it has been since August 2016.

February’s slight decline was driven by slower growth in production in the consumer, intermediate and investment goods sectors. In contrast, growth in new orders accelerated, with greater business reported both at home and abroad. In response, employment in the sector increased for the 19th straight month, while backlogs of work dipped and purchasing activity rose. On the price front, input prices rose sharply, particularly for raw materials. Output prices consequently increased, although both input and output price inflation eased compared to the prior month.

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