The services purchasing managers’ index rose to 53.6 from 53.2. This compares to month-on-month drops from both the manufacturing and construction industries, in surveys released on Monday and Tuesday.
A score above 50 is seen as good and indicative of future growth, one below 50 as bad and a potential warning about a slowdown or even a recession.
Russ Mould, investment director at AJ Bell, comments:
“Although services still came in below its 12-month average score, the month-on-month increase will at least offer a little encouragement regarding the UK’s near-term economic growth prospects, especially as last week’s GfK consumer confidence reading also showed a slight improvement.
“However, it is unlikely to help Governor Mark Carney and the Bank of England’s Monetary Policy Committee with its next interest rate decision.
“Mr. Carney continues to drop hints that a first interest rate increase since July 2007 is imminent and looking at the economic circumstances then and now it is easy to see why, at least going by the lower unemployment rate and the inflation figure which is currently above the Bank’s 2% target.
| Jul-07 | Sep-17 |
Bank of England base rate (%) | 5.75% | 0.25% |
Unemployment rate (%) | 5.3% | 4.3% |
CPI inflation (%) | 4.4% | 2.9% |
Wage growth (%) | 4.5% | 2.1% |
Real wage growth (%) | 0.1% | (0.8%) |
House price inflation (%) | 10.6% | 5.1% |
Source: Thomson Reuters Datastream, ONS, Bank of England
“However, the Bank of England has had ample opportunity to raise rates on the basis of those tests alone, so the reasons behind the studious inactivity seen since August 2016’s cut and re-launch of Quantitative Easing must lie elsewhere.
“For all that inflation and unemployment would suggest a rate rise in merited, flaccid wage growth does not. Wage increases continue to run below inflation and this apparent break down in the Phillips Curve, which asserts low unemployment should lead to higher wage increases (and vice-versa) does still seem to be a major factor in Bank of England thinking.
“A cooling in the housing market, mixed industrial sentiment surveys and the debate over what Brexit may or may not mean for the UK’s economic prospects are additional complications.
Source: Thomson Reuters Datastream, ONS
“The UK inflation figures on 17 October and unemployment and wage growth numbers on Wednesday 18 could be particularly telling.
“A rate hike is by no means certain, especially as the vote against a tightening of policy was 7-2 last time, and by even discussing a rate rise the Bank is at least talking up the pound – and strength in sterling will help the MPC by dampening inflation as it makes imports less expensive.
“It could therefore be that the Bank is simply trying to jawbone the currency markets although there is a danger here – if it continues to lead everyone to expect a rate rise and then not deliver (as it has done on several occasions since 2013) then the markets may stop listening as they tire of frequent cries of ‘wolf’. The Bank of England may therefore need to act to preserve its credibility, especially as the US Federal Reserve is already moving toward its fifth interest rate hike of this cycle and is preparing to start withdrawing QE this month.”