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UK Services Growth Pauses

James Boston
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UK Services Growth Pauses

Yesterday brought a welcome up tick in the British Manufacturing sector in the form an expanding Purchasing Managers Index (PMI). The Services version of this measure has just been published and it is showing some slight pullback, this now stands at 57.7 for the month of June compared to 58.6 for May and a market consensus estimate for 58.3. The Composite PMI for the UK now reads at 58.0, this is still elevated but does represent an overall drop on the previous month’s 59.0 reading and also slightly misses the 58.6 market consensus figure.

The UK’s trade balances continue to improve as the recovery takes hold, this is helped in no small part by the services sector of the economy which currently accounts for over 40% of the Britain’s exports. This is a welcome support for the balance of payments numbers that have been experiencing underperformance from the manufacturing sector. It is the high value add service such as those in the financial sector that are selling abroad and are relatively more immune to the competitive disadvantage brought about by a rising currency.

There are a number of threats currently facing the UK’s stellar return to growth, accelerating house price growth is certainly the headline problem for the authorities at the moment. Other aspects, that heretofore had given cause for concern, are falling by the way side. Yesterday’s confirmation that the Manufacturing sector is in better shape than previously anticipated brings further confidence that current economic growth comes with much welcomed stability.

The fact that many sectors are now contributing to the UK growth story may hasten the need for some cooling of the economy. This could now result in a truncation of the timetable for interest rate rises previously slated for sometime early next year. The Bank of England has been avoiding the use of interest rates to calm the housing market due to the potential adverse affect on the general economy, however as other sectors begin to perform it now frees up the Bank to use this broader economic policy tool.

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