U.K. Triple-Dip Worries Ebb as Services Unexpectedly GrowScott Hamilton
U.K. services unexpectedly grew at the fastest pace in four months in January, indicating the economy may avoid an unprecedented triple-dip recession.
A gauge of activity surged to 51.5, the highest since September, from 48.9 in December, Markit Economics and the Chartered Institute of Purchasing and Supply said in London today. Economists had forecast an increase to 49.5, according to the median of 33 estimates in a Bloomberg News survey. A reading above 50 indicates expansion. Another report showed euro-area services shrank less than initially estimated in January.
Coupled with a Feb. 1 report showing U.K. manufacturing continued to expand last month, today’s survey adds to signs of a recovery after gross domestic product fell 0.3 percent in the fourth quarter. Bank of England policy makers, who begin their monthly two-day meeting tomorrow, will keep their bond-purchase program on hold at 375 billion pounds ($590 billion) on Feb. 7, according to all 43 economists in a Bloomberg News survey.
“With the manufacturing index also in expansion territory, despite bad weather having provided some disruption, it looks more likely that the U.K. will post a modestly positive GDP reading for the first quarter,” said James Knightley, an economist at ING Bank NV in London. “Nonetheless, the data is volatile and confidence is fragile.”
The pound was little changed against the dollar today and traded at $1.5754 as of 11:44 a.m. London time. Bonds declined, pushing the yield on the benchmark 10-year U.K. gilt up 5 basis points to 2.13 percent.
Markit said new business and confidence at services companies rose in January and payrolls increased the most in six months. There were also signs of continuing price pressures, with input-price inflation accelerating and output-price inflation at the highest in 1 1/2 years.
Services growth would have been even stronger in January without the impact of cold weather that led to heavy snowfalls across most of the country, according to Markit.
“A huge sigh of relief accompanies these numbers,” said Chris Williamson, chief economist at Markit in London. “A return to growth of the service sector in January greatly reduces the likelihood of the U.K. falling back into a triple-dip recession.”
As well as leaving the target of its quantitative-easing program on hold this week, the BOE’s Monetary Policy Committee will keep its benchmark interest rate at a record low of 0.5 percent.
“The MPC was already widely expected to hold fire at Thursday’s meeting and the improvement in this closely-watched survey now makes that more likely,” said Vicky Redwood, an economist at Capital Economics Ltd. in London. “However, the committee’s pause may not last for long. Business surveys will have to rise a lot further before they are consistent with the reasonable recovery that the MPC expects to get going soon.”
Earlier today, Australia’s central bank held its benchmark interest rate at the half-century low reached in 2009 and said it has room to cut to a record as a weak labor market contains inflation.
“The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand,” Governor Glenn Stevens said in a statement after leaving the overnight cash-rate target at 3 percent. “Looking ahead, with the labor market softening somewhat and unemployment edging higher, conditions are working to contain pressure on labor costs.”
Markit’s U.K. manufacturing index published on Feb. 1 slipped to 50.8 in January from 51.2 in December, while a construction gauge held at 48.7, the third month of contraction. A composite measure based on the three surveys is consistent with the economy growing “marginally” in January, Markit said.
The National Institute of Economic and Social Research cut its 2013 growth forecast today and said the economy is at risk of a prolonged stagnation. It sees GDP rising 0.7 percent instead of the 1.1 percent forecast in November, and 1.5 percent in 2014.
The British Retail Consortium said retail sales rose 1.9 percent last month from a year earlier on a like-for-like basis. Total sales increased 3 percent. The BRC said the figures may indicate that “the mood is lifting a little for customers and retailers” after a subdued Christmas.
In a separate report today, Markit said its index of euro-area services rose to 48.6 from 47.8 in December. That’s above an initial estimate of 48.3 published on Jan. 24. A composite gauge of euro-area services and manufacturing output improved to 48.6 from 47.2 in December, the report showed.
European stocks rebounded today from their biggest drop in three months yesterday. The Stoxx Europe 600 Index rose 0.7 percent, while the FTSE 100 Index also advanced 0.7 percent.
China’s services industries expanded at the fastest pace in four months in January, according to a survey published today. HSBC Holdings Plc and Markit said their index rose to 54 from 51.7 in December. A separate government-backed survey published on Feb. 3 showed services industries expanded at the fastest pace since August.
In the U.S., service industries probably grew in January at about the same pace as the previous month. The Institute for Supply Management’s non-manufacturing index was probably 55 after a reading of 55.7 in December, which was the highest level in 10 months, according to the median forecast of economists surveyed by Bloomberg before a report due later today.