UK services PMI below forecasts, signals slowdown in Q1 growth

February's service sector PMI data from IHS Markit and the CIPS came in below analyst expectations in a sign the UK economy is slowing down at a faster-than-anticipated rate. UK service PMI for February printed at 53.3, below analyst expectations for a reading of 54.1 and well below the previous month's 54.5.

UK services PMI hit a five-month low extending a disappointing run for UK data thus far in 2017. Downbeat February’s Markit/CIPS services survey adds to other evidence that suggests that the economy has lost a bit of momentum in the first quarter.

Inflationary pressures remained the highest for six years as firms struggled with rising costs associated with the weak pound, but optimism about the year ahead remained elevated. The future activity index only ticked down from 70.8 to 70.5, above its long-run average and suggesting that firms are not especially pessimistic about the near-term outlook.

Taken together with February’s manufacturing and construction surveys Capital Economics believe the economy-wide all-sector PMI fell to a level consistent, on the basis of past form, with quarterly GDP growth of about 0.4%.