U.K. services PMI index rebounds in May, economy likely to grow at slower rate in Q2 2019

U.K. Services PMI index picked up in May, in contrast to softer figures seen in the manufacturing and construction PMIs that were released earlier this week. The services PMI index rose to 51 from 50.4, as compared with consensus expectations of 50.5. Still, around these levels the reading continues to be well below its long-term average, and considerably down on the levels seen over the past year, implying that overall confidence in the service sector continues to be weak. IHS Markit commented that sentiment rebounded only slightly as “Brexit uncertainty held back client demand and remained a headwind to growth”.

The new business orders component rose in May to 50.6 and crucially moving back above the key 50 level having been below for the four previous months. Interestingly, this looks to be largely down to a rebound in orders from abroad –with the measure of new export business rising to 50.6 from 47.4.

However, mirroring these trends in business activity and new business, firms stepped up the pace of job creation. Having held around the 50-mark in the previous five months, the employment component of the survey rose to 51.8 in May. This partially reflected an attempt by companies to stimulate operating capacity, with some companies attributing the rise in headcount to long-term business growth plans.

In all, today’s report implies that the granting of the six-month growth to the Article 50 deadline by the EU has served to ease near-term concerns for companies in the sector, noted Lloyds Bank in a research report. This implies that there is scope for confident to ease back in months ahead as the October deadline approaches, especially if the prospect of the U.K. leaving the EU without a deal rises again.

However, service sector companies expressed greater positivity over the longer-term outlook for activity. The future activity index, which measures companies’ expectations for output over the next 12-months, moved up to an eight-month high of 65.4.

The rise in the services PMI offset the manufacturing PMI earlier this week, leaving the composite PMI unchanged at 50.9 in May. However, Markit commented that “the PMI survey collectively indicated that the U.K. economy remained close to stagnation midway through the second quarter”.

“This supports our view, that the UK economy will grow at a substantially slower rate in Q2, than the 0.5 percent q/q pace recorded in Q1”, added Lloyds Bank.

At 11:00 GMT the FxWirePro's Hourly Strength Index of British Pound was slightly bearish at -52.6892 while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -109.24 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex