U.K. services PMI index rises in April

The U.K. services PMI rose in the month of April. The headline PMI index rose to 50.4, as compared with consensus expectations of 50.3 and March’s print of 48.9. Still, the services PMI, around these levels, continues to be below its long-term average, and considerably down on the levels seen in the last year. This implies that the overall sentiment in the service sector continues to be weak. The IHS Markit, in their accompanying commentary stated that the confidence rebounded only a bit as “Brexit uncertainty and concern about the UK economic outlook had encouraged clients to postpone spending decisions”.

The details of the services report also underlined some disappointing trends. The new business orders component remained below the key 50 level for the fourth straight month, while the measure of new export business remained below 50 for the eight straight month. 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. While increasing demand from clients in the U.S. were noted, Brexit worries from European sources provided the overarching influence.

These dynamics imply there is considerable scope for confidence to rebound, especially if the U.K.’s future with the EU slowly 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, noted Lloyds Bank in a research report. Accordingly, companies reacted to this weaker backdrop by continuing to hold back on job creation.

In all, today’s report implies that the granting of the six-month extension to the Article 50 deadline by the EU has only served to extend the uncertainty in the economic outlook. Nevertheless, looking past the near term, service sector companies showed greater optimism in the longer-term outlook for activity. The future activity index, which gauges companies’ expectations for output in the next 12-months, moved up to a seven-month high of 63.9. Service providers attributed this rebound to “new business opportunities and forthcoming product launches”.

“For now, the rise in the services PMI more than offset the fall in the manufacturing PMI earlier this week to push the composite PMI up to 50.9 in April, from 50.0 in March. However, according to Markit, the PMIs were “suggesting the economy remained more or less stalled at the start of the second quarter””, added Lloyds Bank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bullish at 141.882 while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -6.23347 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex