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UK CommentPMIs stronger than expected in February

  1. Services sentiment pulled higher by incoming business, current activity and employment
  2. Despite tight labour market, cost pressure has eased
  3. PMI surveys suggest growth should hold up well in Q1
Services sentiment pulled higher by incoming business, current activity and employment
The UK Services PMI surprised on the upside in February, increasing to 54.5 (from 53.0 in January). The consensus expectation for February was 53.3. The PMI composite increased to 54.5 in February, from 53.5 in January. The consensus expectation was 53.6. Sentiment in the services sector was pulled up by incoming new business, current business activity and employment. According to the survey, business activity rose at the fastest pace for four months and new work saw the strongest upturn since May last year. Service providers commented on particularly marked B2B sales growth in February, helped by the improving global economic backdrop. However, there were also reports that stretched household budgets were still holding back domestic consumer demand. Employment numbers were expanded to the largest extent since last September, driven by stronger-than-expected sales growth and subsequent efforts to expand business capacity. Despite pressure on operating expenses from higher staff salaries and transport costs, the latest data indicated a moderation of input price inflation to its lowest since August 2016, according to the survey. Some firms noted that exchange-rate-driven cost pressure had stabilised in recent months. Despite current business picking up, future expectations edged down in February and were lower than the historical average, although higher than the average for 2017.
PMI surveys suggest growth should hold up well in Q1
Last week, the PMI surveys for the manufacturing and construction sectors showed manufacturing sentiment moving sideways in February, largely in line with consensus, while construction sentiment picked up more than expected. Based on past form, the PMI composite indicates that GDP growth should hold up well from the end of last year and into 2018. The PMI employment indicator suggests a tight labour market, but the indicators for cost pressure have nevertheless eased notably, resuming a downward trend after some levelling off over the past few months.


 

 


 



 


Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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