Britain's crucial services sector confounds gloomy forecasts to register growth in February

Britain’s crucial services sector has confounded gloomy forecasts of a retraction in activity to register growth in February.

Watched closely in the City, the IHS Markit/CIPS services purchasing managers’ index is one of the key indicators on the country’s economic health due to the dominance of the services sector.

The index showed a reading of 51.3 last month, up from the two-and-a-half-year low of 50.1 recorded in January and ahead of bearish predictions of a fall to 49.8.

Britain’s services sector has confounded forecasts to register growth in February

A reading above 50 in a PMI means the sector in question is growing, while below this level indicates a retraction.

There was a downbeat note underneath the headline figures however, with hiring in the sector declining at its fastest pace in seven years as Brexit concerns continue to hit the confidence of recruiting managers.

While some growth is always better than none, the modest level indicates the economy as a whole will grow by just 0.1 per cent in the first quarter of 2019, according to IHS Markit.



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Unsurprisingly, the research and data firm said uncertainty surrounding Britain’s departure from European Union was the most frequently cited factor by companies when explaining their reasons for a cautious approach.

The services data follows a PMI update on the construction sector released yesterday which said Britain’s building sector contracted in February.

Chris Williamson, chief business economist at IHS Markit commented: ‘The latest PMI surveys indicate that the UK economy remained close to stagnation in February, despite a flurry of activity in many sectors ahead of the UK’s scheduled departure from the EU. The data suggest the economy is on course to grow by just 0.1% in the first quarter.’

‘Worse may be to come when pre-Brexit preparatory activities move into reverse. Many Brexit-related headwinds and uncertainties also look set to linger in coming months even in the case of PM May’s deal going through.’      

David Cheetham, chief market analyst at XTB had a more upbeat take on the figures.

‘The latest read on the UK service sector has come in better than expected, with the PMI reading for February rising to 51.3, he said. ‘This keeps the indicator above the 50 mark and crucially means that it hasn’t followed the construction equivalent into contraction territory.’ 

‘There are 2 factors that make the beat all the more pleasing; first that the service sector is by far the largest and second that while the manufacturing reading for last month remained above 50, it was due in no small part to record levels of stockpiling for fear of a no-deal Brexit – something which is hardly positive and isn’t really feasible for services.’