Markit/CIPS PMI data points to strong start to 2015 for UK economy

The Gherkin with Canary Wharf in the distance, seen from the roof of Tower 42 in the City of London.

The Gherkin with Canary Wharf in the distance, seen from the roof of Tower 42 in the City of London. - Credit: PA

Growth in Britain’s services sector beat expectations last month, according to a new survey – further lifting hopes of a strong start to the year for the UK economy.

The latest Markit/CIPS PMI index for the services sector, which represents around three quarters of the UK economy, shows a readinig of 57.2 for January compared with a 19-month low of 55.8 in December and a median forecast of an increase to 56.3, with any figure above 50 representing growth.

Services firms were boosted by slowing inflation in input costs and lower fuel prices, partly offsetting an increase in salaries. The survey found new business increased “at a marked and accelerated pace” in January.

The figure for services follows improvements earlier this week in the PMI readings for Construction, up from 57.6 in December to 59.1 last month, and manufacturing, up from a restated 52.7 to 53.0.

A combined output reading from the main sectors of the economy showed a reading of 56.9, up from 55.5 in December and slightly better than the performance over the whole of the fourth quarter of 2014. The combined polls also suggested jobs were being created at the rate of 70,000 a month.

Markit chief economist Chris Williamson said: “The January PMI surveys signalled a reassuringly robust start to the year for the UK economy, indicating a quarterly rate of GDP growth just over 0.5%.

“The data will allay fears that the economy is slowing sharply, having merely seen growth cool during the winter to a more sustainable pace.”

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He said low inflation meant early 2016 still looked the most likely time for a rise in interest rates but added that the upbeat data meant “the possibility of a hike in November 2015 very much remains on the table”.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “It looks like the UK economy may well have regained some momentum in January after growth slowed in the final months of 2014.

“At this early stage, we expect UK GDP growth to edge back up to 0.6% quarter-on-quarter in the first quarter of 2015 after moderating to 0.5% quarter-on-quarter in the fourth quarter of 2014.”

Samuel Tombs of Capital Economics said: “January’s Markit/CIPS report on services provided further reassurance that the UK economy is not on the cusp of a renewed slowdown and suggested that it would be foolish to discount the possibility of a 2015 interest rate hike altogether.

“We think that the recovery could gain even more pace over the coming months. While oil prices have picked up in recent weeks, they are still around half the levels seen six months ago and consumers have not yet seen the full benefits.”