UK economy: Quick View – PMI surveys point to modest upturn in January

Event

The composite purchasing managers’ index (PMI) measuring output in the services, manufacturing and construction sectors rose to a four-month high of 51.7 in January, from 49.8 in December. The data imply a return to modest output growth, after the economy contracted in late 2012.

Analysis

The rise in the all-sector PMI in January was driven by improved business sentiment and activity in both services and manufacturing, which more than offset a further contraction in construction output. The data support our forecast of a modest rise (in quarter-on-quarter terms) in headline GDP growth over the first three months of 2013, following a 0.3% contraction in output during the final quarter of 2012 (according to a recent flash estimate from the Office for National Statistics). Evidence within the PMI surveys of an upturn in new business volumes and in expectations of future orders also reinforces our view that the Bank of England (the central bank) will leave monetary policy unchanged at its next meeting on February 7th.

The services PMI rebounded back into “positive” territory in January, rising to 51.5 from 48.9 in December (a reading above 50 implies an expansion in output, whereas below 50 suggests contraction). Companies reported a moderate increase in demand, while better economic data from the US and Asia – alongside a degree of stabilisation in euro zone financial markets – contributed to business expectations picking up to their highest level in eight months. Firms indicated that the period of heavy snow during the month had a marginal impact in depressing output. Higher energy and food prices pushed up input costs to a nine-month high.

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