UK Services PMI recovers partially from February’s unexpected slump

Data released earlier today showed that UK services PMI picked up from 52.7 in February to 53.7 in March, a little stronger than consensus expectation for 53.5. The UK services PMI posted only a partial recovery from February’s unexpected slump to close to 3-year lows.

The March print still remains below the long-term average of 55.2 and suggests that growth in the dominant and domestically-facing sector of the economy softened meaningfully since the end of 2015. Today's report suggests that near-term headwinds continue for UK economy and that both global and domestic uncertainties are taking their toll even in domestically-facing sectors.

Today’s firmer report should alleviate perceptions that the more dovish members of the MPC are on the verge of voting for a cut in Bank Rate. Moreover, following the upwardly-revised momentum in official estimates of services sector output follows last week’s upbeat GDP data. Third and final estimate of GDP came at 0.6% in Q4 2015 versus prior estimate of 0.5%. The annual rate of GDP growth was also higher at 2.1%, compared to previous estimate of 1.9%.

"GDP growth of around 0.5% q/q continues to look plausible for 2016 Q1. Absent other evidence that the margin of spare capacity in the economy is widening, such a pace of growth is likely to be sufficient for a passive MPC stance pending more clarity on the key global and domestic economic uncertainties." said Lloyds bank in a report.