Today's services figures bode well for Q1 GDP, says ITEM Club

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s PMI services figures:

  • A reassuring outturn for the services PMI indicating underlying momentum in the sector
  • Today’s release bodes well for Q1 GDP and reduces the chances of a triple-dip recession
  • As a result MPC members are likely to sit tight on monetary policy again this month

“A reassuring outturn for the services PMI, especially in light of the dismal results for manufacturing and construction. Increases in business volumes, confidence and employment are all very encouraging and point to some underlying momentum in the services sector. With today’s BRC survey reporting robust growth in retail sales, a sector not covered by the PMI, the service sector looks to be in reasonable shape.
 
“Higher activity in services will potentially offset the weakness in manufacturing and construction. So today’s figures bode well for growth in Q1 and reduce chances of a second consecutive fall in GDP, and therefore a triple-dip recession.
 
“Despite signs that the MPC is moving towards more QE, these figures suggest it probably won’t happen this month. The Committee may well decide that the recent fall in sterling is sufficient stimulus for the time being.”