UK services PMI highest since September 2018

An election bounce saw activity in the UK services sector improve more than initially estimated in January, to its best level since September 2018, according to a survey released on Wednesday.

The IHS/Markit CIPS purchasing managers’ index rose to 53.9 from 50.0 in December, coming in above the initial estimate and consensus expectations of 52.9 and marking the highest level for 16 months.

Survey respondents said the headwind from delayed decision-making had lifted since the general election, helping to deliver a return to business activity growth. This was also reflected in a robust improvement in order intakes, with the rate of new business expansion accelerating to its strongest since June 2018.

Tim Moore, economics associated director at IHS Markit, said: "January's PMI surveys give a clear signal that the UK economy has picked up since the general election, as a diminishing headwind from political uncertainty translated into rising business and consumer spending. We maintain our nowcast of UK GDP rising by approximately 0.2% in the first quarter of 2020, which represents an improvement on the sluggish conditions seen at the end of last year.

"A solid return to growth in the service sector was the main factor behind the recovery in the UK economy, with survey respondents commenting that a rebound in sales enquiries had quickly translated into rising workloads so far this year."

Sterling a got a boost from the data, rising 0.3% against the dollar to 1.3064 and 0.4% versus the euro to 1.1850.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The big upward revision to the services PMI in January from the flash estimate is another encouraging sign that the post-election recovery in the economy is gathering momentum.

"The January flash reading was based on 83% of responses ultimately received for the final estimate. This suggests that the sample of responses received after the cut-off for the flash estimate on January 22 are consistent with a PMI of about 58. We wouldn’t place too much weight on the precise number, but it’s clear responses received later in the month were much stronger than those at the start, consistent with the idea that the recovery is strengthening.

"On past form, the 53.3 level of the composite PMI points to GDP rising at a 0.3% quarter-on-quarter rate in Q1, above the MPC’s 0.2% forecast in last week’s Monetary Policy Report."