U.K. services PMI index rises above expectations in December

The U.K. services PMI index rose above consensus expectations in December. The headline index rose to 51.2 from November’s 50.4. Consensus expectations were for 50.7. Still, around these levels the services PMI continues to be well below its long-term average, and considerably down on the levels seen earlier in 2018, implying that overall sentiment in service sector stays soft, noted Lloyds Bank in a research report. According to IHS Markit’s accompanying commentary, confidence rebounded only a bit as “Brexit-related concerns were the major factor being a drag on business-to-business spending”.

Meanwhile, the details of the services report also underlined some disappointing trends. The flow of new business orders continued to be weak at 50.9, with the measure of new export business moving further below the ‘50’ mark, which separates expansion from contraction. While increasing demand from clients in the U.S. and China were noted, Brexit concerns from European sources provided the overarching influence.

These dynamics imply there is significant scope for confidence to rebound, especially if the U.K.’s future with the EU gradually becomes clearer. However, for now, an environment where new business orders continue to be weak and outstanding work backlogs are falling does not augur well for the activity outlook in the months ahead, with confidence about the year-ahead falling to its lowest since July 2016.

For now, the rise in the services PMI, along with the better-than-expected manufacturing PMI seen earlier this week, nudged the composite PMI to 51.4 in December, from 50.8 in November.

“According to Markit, these levels are consistent with quarterly GDP growth of around 0.1 percent, a marked slowdown on the 0.6 percent quarterly pace recorded in Q3. Our forecast is for a 0.3 percent rise in Q4”, added Lloyds Bank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at 52.6951, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 37.6591. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex