UK service sector PMI growth eases double-dip recession fears

Friday, 03 February 2012 12:14

Vital purchasing managers’ index (PMI) UK economic data for January was released this week for the manufacturing, construction and services sectors.

The data gives a first indication on the likely direction of GDP in the first quarter of 2012. Overall the data was positive with a big improvement in Manufacturing, a slight decline in construction but a big boost from the dominant services sector with the highest amount of growth for ten months.

Wednesday saw the release of manufacturing data. This was positive with the index increasing from 49.7 in December to 52.1 in January, an eight month high. Output growth grew to a ten month high and manufacturing production continued to expand. Foreign demand continued to grow providing an optimistic outlook for inflation.

Howard Archer, Chief UK & European Economist at HIS Global Insight said: “This [data] suggests that there is a very decent chance that the manufacturing sector will return to growth in the first quarter of 2012 after contributing significantly to overall GDP contraction of 0.2% quarter-on-quarter in the fourth quarter of 2011.”

On Thursday, the construction sector PMI came out and it confirmed that the sector is continuing to grow, but at a slower pace. The PMI fell from 53.2 in December to 51.4 in January. This is the lowest level of growth for four months. Two of the three sub-sectors in the construction industry, housing and civil engineering, recorded a decline in output.

Mr Archer had this to say on the construction figures: “The purchasing managers survey indicates a loss of momentum in the construction sector in January in terms of both output and incoming new orders, highlighting the fact that the sector is currently facing a very challenging environment.”

On Friday morning data released from the services sector for January provided a big boost to the UK economy as the sector recorded its highest PMI index reading of 56.0, up from 54.0 in December. The sector recorded the largest monthly improvement in business optimism recorded in January and the recorded rise in employment was the strongest for just under four years.

Mr Archer said: “The purchasing managers services survey makes unusually pleasant reading. Given the dominant role of the services sector, the appreciable pick-up in activity to a 10-month high in January indicated by the purchasing managers significantly boosts hopes that the economy can avoid ”double dip” recession and return to growth in the first quarter of 2012 after GDP contracted by 0.2% in the fourth quarter of 2011.”

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