Brexit recovery continues with robust services numbers
The post-referendum slowdown is set to be significantly better than first feared, vital services industry data out this morning has confirmed.
The closely-watched purchasing managers' index (PMI) for the sector which accounts for three-quarters of the UK economy came in above expectations at 52.6 for September – solidly in the above-50 zone which signifies expansion.
The reading dipped slightly from the 52.9 recorded in August, though the expansion showed the "UK continues to recover from Brexit vote shock," Markit, which compiles the index, said.
Economists said the numbers indicated the UK economy grew by between 0.2 per cent and 0.3 per cent in the third quarter of the year – significantly better than many feared in the immediate aftermath of the 23 June vote. The figures complete a week in which all three PMI scores – for manufacturing, construction and services – came in above expectations.
"Across the three sectors, the pace of economic growth signalled was the strongest since January, fuelling greater job creation as companies shrugged off short-term Brexit worries and enjoyed the benefits of a weaker currency." said Chris Williamson, chief business economist at Markit.
Financial markets were nudged only slightly on the news, with the pound dipping very modestly around the time the data was released. However, in a week of violent swings on the currency markets, political news and Brexit speculation is the only game in town for forex traders.
Markit's Williamson added: "The solid PMI readings for September will cast doubt on the need for any further stimulus from the Bank of England in coming months. It’s clear, however, that the pace of expansion has cooled since the first half of the year, reflecting widespread concern about the potential future impact of Brexit.
The weighted ave. of the three PMIs is slightly above the level that has triggered the MPC to cut rates before, casting doubt on Nov easing: pic.twitter.com/hnzTSzFBI1
— Samuel Tombs (@samueltombs) October 5, 2016
"As such, the economy remains vulnerable to further setbacks and the need for policy action later in the year cannot be ruled out."
However, Paul Hollingsworth at Capital Economics said: "It could be that the economy is just in a Brexit “sweet spot”. Some of the positive developments since the vote – such as action by the monetary policy committee (MPC) and the drop in the pound boosting export orders – have been felt before the major adverse consequences, in particular a rise in inflation and consequent hit to households’ real incomes.