Press release

3 Feb 2022 London, GB

A better outlook for services, but inflation persists – EY ITEM Club comments

A rise in January’s services PMI suggests that Omicron’s economic impact is past its peak.

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Related topics Growth COVID-19
  • A rise in January’s services PMI suggests that Omicron’s economic impact is past its peak. And a significant recovery in new orders also pointed to the improved public health situation lifting services activity.
  • However, price pressures among services firms picked up further in January. This will give some added justification to the rise in Bank Rate the EY ITEM Club expects the MPC to announce later today.

Martin Beck, chief economic advisor to the EY ITEM Club, says:

“January’s services PMI rose to 54.1 from December’s 10-month low of 53.6. This was an unusually large margin above January’s flash PMI of 53.3, suggesting that the improved public health situation as January progressed boosted services activity. The survey’s new orders balance also enjoyed a strong revival from December’s reading, while employment continued to increase at a robust rate. January’s services index left the composite PMI at 54.2, up from 53.6 a month earlier.

“The rise in new orders bodes well for a further increase in the services PMI over the next few months and a recovery in GDP growth from what was probably near-stagnation in January. But the latest survey also showed evidence of an acceleration in price pressures among services firms. Input prices rose at the second fastest rate since the survey began in July 1996. And growth in prices charged reached a record high, as firms passed the increased cost of raw materials, energy, and wages to customers.

“The MPC will have had sight of the services survey in arriving at its latest decision. And evidence that inflationary pressures in the economy’s dominant sector remain strong will provide further support for the rise in Bank Rate to 0.5% the EY ITEM Club expects to be announced at midday today.”