Data shows UK economy starting to 'warm up'

The Services sector offered an extra boost to the UK economy following better than expected PMI data for both manufacturing and construction.

David Sapsted

4 July 2018

The UK’s services sector, which accounts for more than three-quarters of the nation’s GDP, recorded its fastest growth for eight months in June, according to the latest Markit/CIPS purchasing managers’ index (PMI) for the sector.

Services, manufacturing and construction gaining pace

Coming on the heels of better-than-expected PMI data earlier in the week for both the manufacturing and construction sectors, economists hailed the data as proof that the UK economy was recovering after a sluggish start to the year.The services PMI for June stood at 55.1 in June, up from 54 in May, in an index where a reading above 50 indicates growth.The rise was mainly attributed to the highest increase in new work since May last year.James Smith, developed markets at ING, commented, “Just like the manufacturing and construction indices, the latest UK services PMI has beaten expectations. At 55.1, it now stands at the highest level since October, and despite the ongoing uncertainty surrounding Brexit, new orders are rising at the fastest rate in over a year, too.“This, much like the recent data emerging from the retail sector, suggests that the economy is having a better ride in the second quarter than in the first – and for the Bank of England, this will be put a fairly big tick in the August rate hike box.”

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Interest rate speculation

Speculation that the data heightened the chances of the Bank of England raising interest rates in August led to the pound strengthening on international markets. Balraj Sroya, sales trader at Foenix Partners, said, “The services PMI print today concluded a trifecta of phenomenal PMI figures from the UK this month, posting seven-month highs at 55.1. The bullish figures from the services, construction and manufacturing sectors, along with GDP beating estimates last week, prove the UK economy is gaining momentum once again.“As a result, the likelihood of the Bank of England raising rates this summer has strengthened, with chances currently sitting over 60 per cent in favour of a hike.”Earlier in the week, the manufacturing PMI for last month came in at 54.4, up slightly on May and ahead of expectations of a reading of 54. The construction PMI for June stood at 53.1, up from 52.5 and representing a seven-month high, mainly thanks to a surge in new orders.Howard Archer, chief economist at EY Item Club, said, “A significantly improved survey for the dominant services sector adds to the feel-good factor after England actually winning a penalty shootout to reach the quarter-finals of the World Cup,” he said.“The improved services survey completes an overall stronger set of purchasing managers’ surveys pointing to the economy warming up in June.”Meanwhile, Markit’s PMI for the eurozone’s service sector showed growth picked up last month after a weak start to 2018. The index rose to 55.2 in June, up from May’s 53.8, which helped compensate for a slowdown in growth in the zone’s manufacturing sector last month.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online Directory

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