Stellar services survey sparks new talk of interest rate rise

The PMI services index shows Britain's largest sector is growing again, sparking new talk that the Bank of England may soon move to lift interest rates.

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by Deborah Hyde on Feb 03, 2011 at 10:12

There was a sharp recovery in the UK's services industries in January, data has shown, sparking new speculation that the Bank of England will soon begin to lift interest rates.

The Markit/CIPS purchasing manager’s index jumped to an eight month high of 54.5 from 49.7 in December when bad weather kept people out of shops and restaurants. Anything above 50 shows the sector is growing.

The data adds to the news earlier this week that both the manufacturing and construction sectors were also growing in January.

It comes as welcome relief after the shock news that the UK economy shrank 0.5% in the last three months of 2010.

David Noble, chief executive officer of the Chartered Institute of Purchasing & Supply, said 'It now seems clear that it really was the weather that had such a negative impact on the economy in December as we are now back to ‘pre-snow’ growth.'

Taking the services, construction and manufacturing reports together, the survey's compiler suggests that the surveys are consistent with quarterly growth of around 0.4%.

With inflation well above target and set to rise further in the months ahead, some market watchers now believe the data shows the UK growth is on a sound footing and therefore it is time for the Bank of England to lift rates.

But while the data provided some much needed cheer, James Knightley, UK economist at ING, pointed out that even 0.4% is still a slowdown relative to 0.6% growth in the third quarter and 1.1% growth in the second quarter.

Knightley said current market expectations that interest rates will rise to 1.25% from their current low of 0.5% by the end of the year may be misplaced.

'Given the weak fundamentals of the household sector (negative real household disposable income, falling house prices, fiscal austerity measures and tight credit conditions) we still have our doubts about how much will be passed through into CPI,' Knightley said.

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3 comments so far. Why not have your say?

The economy as a whole is a basket case.

By the time gas, electricity, VAT, fuel and food prices are factored in the net disposable income of a huge swathe of the population is being squeezed to the point of non-existence. I think its time for our pundits in London to stop just looking out of their front windows and consider the UK in totallity for a change. Theres not to many of the people outside of the south east with the benefit of £100k plus salaries and bonuses!!

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I work in London and get much less than half of the above quoted salary. With train travelling costs being over £6k per annum plus the increases in VAT, fuel and food prices to say nothing of the falling value of my small, very modest home, I have no disposable income after paying bills and essentials such as food and housing costs. My daughter works in the care industry and has been told that with the rise in personal allowances, her family tax credits will be reduced by £25 per week on her magnificent income of circa £16k. She pays full rent and council tax and brings her son up alone. So the poor suffer, middle income people are sqeezed dry and who benefits? The rich get richer and the poor get poorer. Tax avoidance is rife amongst those who can afford to pay for advice. The rest of us continue to pay. Equality? Fairness? Not in the UK in 2011.

If I was younger I would emigrate. I could retire in 10 years at 66 but will probably have to work til I drop. Inadequate pension provisions from low salaries really hit women hard. The big society? Look at the reality of ordinary people who work hard and support those who have no intention of working. British society has really lost its way. The greed of those in the public eye beggars belief and for the young are often role models. The future looks terrifying with a real possibility of desperate poverty and hardship in our corrupt society.

Am I a dissillusioned labour voter? No I have voted Tory and Liberal in the past but despair of both of them now!!

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allan c

Feb 03, 2011 at 22:26

your forgeting the goverment are sliping in new vat increases and taxes that directly effect the price of makeing and selling goods..

these in turn make food and goods more costly to buy, the bank of england say ...LOOK INFLATION IS GOING UP....we will have to put rates up ..we dont want to look like we are doing nothing...

of course the familys have been useing the money saved on the low mortgage rate to pay for the extra cost of food/petrol/gas electricity and rates, so a rate rise will have the effect of the avge family buying no extras and making do..if they can,

companys sell less and lay staff off..

what a shower of fools we have running the country and sitting on these commities....god help us ..

the banks have billions now..taken from hard pressed familys ..and the goverment are trying to take more ( too late i say to the goverment ) the banks got there first ??? they cannot both rob us ???

the goverment dont run the country ...THE BANKS DO ..along with the 12 wise men who sit down each month and have the say of life or death over struggling familys trying to survive with there threat of rate rises.

i thing the word to dicribe this is... genecide

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