Strong momentum in the largest sector of the economy - EY ITEM Club

5 February 2014

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  • Services data rounds off the set of PMIs on a positive note
  • Capacity constraints are resulting in strong employment growth
  • The set of survey results give early indications that growth will be sustained in Q1

Andrew Goodwin senior economic adviser to the EY ITEM Club, comments on today’s PMI services survey:

“The PMI data has provided a solid start to the year, rounding off the set of surveys on a positive note. Despite being the weakest reading for seven months, the numbers are still much stronger than their historical average, and clearly show there is still momentum in the largest sector of the economy.

“The survey had a number of upbeat messages. The outlook of businesses was particularly optimistic. Capacity is being squeezed and a substantial backlog of work is developing. As a result, businesses continue take on staff at a substantial rate, and given the scale of employment in the services sector, this is particularly good news. The chances of unemployment falling below 7% in the next month or two continues to increase.

“Capacity constraints and growing backlogs of work also hint that a pickup in business investment is around the corner. We feel optimistic that the recovery in the UK will be sustained as growth broadens out beyond the consumer and into business investment, as well as exports.

“It is worth noting that the survey data has been much more positive than the hard data in recent months. But the combined strength of the PMI surveys still gives an early indication that GDP growth will expand at a similar clip to recent quarters.”