Services sector stiffens the economic sinews

Martin FlanaganMartin Flanagan
Martin Flanagan
IT IS gratifying how often the services industry plays the cowboy in the white hat for the British economy. The sector made a robust start to 2015, according to the latest figures. The data is the more welcome as the pace of growth in the services industry had slowed in the final sector of last year.

This was worrying as it came at a time when British manufacturing was not picking up too much of the slack, still hobbled as it is by the strength of sterling and the problems in the eurozone, our largest export market.

Given that services – everything from retail to pubs, transport and IT – accounts for about 75 per cent of Britain’s GDP, compared to just 12 per cent from manufacturing, it is clear where the country’s economic touchstone for success is.

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The Cips/Markit purchasing managers’ index survey – where 50 separates growth from contraction – came in at 57.2 last month, better than a 
19-month low of 55.8 in December.

It will stiffen the sinews of the many City economists who have been putting out relatively sanguine forecasts for economic recovery in 2015.

After yesterday’s data, their upbeat take on affairs looks realistic. Markit reckons that at January’s rate of expansion we could be looking at GDP growth of 0.5 per cent for the first quarter of this year, which would certainly put some runs on the board.

It gave a little fillip to speculation that we may see Britain’s interest rates rise by the end of this year, where previously most commentators were moving towards a more likely date for tightening being early 2016. Sterling rose on the forex markets.

Services’ firms got a leg up from slowing inflation in input costs and lower fuel prices, helping new business accelerate noticeably.

Even better, surveys earlier this week showed that manufacturing has regained some of its footing, and construction has also moved ahead.

Manageable deflation is keeping prices low, rising real wage growth should boost consumer spending, and unemployment continues to fall.

Taken in the round, the data seems to indicate the Britain is far from backsliding into a renewed slowdown or water-treading malaise despite December’s mild economic jolt. Things look more positive.

Just because it is winter, we can still enjoy the sunshine.


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