U.K. services PMI index rises further in May, GDP growth likely to rebound in Q2

The U.K. services PMI rose further in May. The headline index rose to 54 from 52.8, surpassing the market consensus of 53.2. Apart from the rise in headline index, the details also saw positive rise. The flow of new business orders rose to 53.1 from 52.9, while the measure of outstanding work came in at 50.1, a rise from 49.4.

Additional new business and some rise in outstanding work augurs well for the outlook for activity in the months ahead, noted Lloyds Bank in a research report. Accordingly, companies reacted to this rebounded backdrop by seeking to stimulate operating capacity through increased headcount. Companies recorded an acceleration in the rate of hiring, pushing the employment component of the index to 51.8 from 51.5.

Still, the overall positivity in the sector continues to be capped by ongoing Brexit-related uncertainty. Companies emphasized that this was a drag on new business growth in May and had reduced clinets’ appetite to spend. Therefore, long-term expectations pared back slightly in May. Still, with stronger global economic conditions providing positive tailwinds, the business expectations index continued to be above the average seen in the second half of 2017. The rate of cost rises picked up as stronger oil prices led to higher fuel charges, along with additional rises in staff wage costs.

The rise seen today, along with the rebound in sentiment in manufacturing in May, signifies that the composite PMI rose to 54.5 from 53.2. This, along with the stable construction PMI, indicates towards a widespread rebound in economy in the second quarter, stated Lloyds Bank.

“Taken together with our own Business Barometer, the surveys point to quarterly GDP growth of around 0.4 percent in Q2”, added Lloyds Bank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at -43.7881, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 50.1275. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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