The services PMI was stronger than expected in September, rising to 52.9 from 51.1 previously (consensus: 50.5, BarCap: 51.0). The new business index rose by 0.8 points to 54.1 and the employment index was up by 1.3 points to 50.2, indicating rising employment after two months of consecutive falls. However, the business expectations index fell by 1.5 points to 63.5, well below its long-run average of 72.8. This index fell to its lowest value for two and a half years as future expectations were dampened by worries that the difficult economic climate will continue and investment will be lower from both the private and public sectors.
The input price index edged up by 0.3 points to 60.4 and continues to be consistent with elevated input price pressures, mainly as a result of higher fuel and energy bills. However, some businesses reported higher wage costs were also pushing up input prices. On the other hand, the prices charged index fell by 0.5 points to 50.0, indicating no changes in average output prices as competitive pressures continued to restrict the ability of companies to increase prices and in some cases led to discounting.
Despite the upside surprise in the services PMI figure for September, we would point out that this comes after the index reported the sharpest fall in over a decade the previous month. At this level, the index is consistent with growth in the sector, albeit below its long-term average.
Today’s figure provides the last PMI data point for Q3, during which the performance of all three sectors (manufacturing, construction and services) was weaker than the previous quarter. We expect growth of 0.2% q/q in Q3 and these data support our view that economic growth continued to be subdued during the last quarter (see chart). Although the general picture from the PMI surveys, which cover about 60% of the UK economy, is one where growth is largely expected to be subdued, it does not suggest that the economy is heading for a double-dip recession and is unlikely on its own to push the balance of data such that the MPC votes for more QE during this month’s meeting.
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ECONOMICS RESEARCH | INSTANT INSIGHTS