UK: Services PMI suggests growth remains sluggish - ING

James Smith, Economist at ING suggests that the chances of a Bank of England hike year this still look slim, as the latest survey of service-sector firms points to another quarter of 0.3-0.4% growth.

Key Quotes

“The latest UK services PMI has come in above expectations, but at 53.8, it still suggests that growth hasn't picked up from the sluggish 0.3-0.4% rate seen in the second quarter. According to Markit, firms continue to cite Brexit uncertainty and the household spending squeeze as dampening factors when it comes to new orders and demand for their services.”

“There is however some positive news for the hawks at the Bank of England, as a "number of companies" pointed to difficulties in finding skilled staff. With the unemployment rate at record lows, this development could put some upward pressure on wages. That said, we still think that uncertainty over consumer demand, combined with rising costs from higher import prices, mean that firms are unlikely to accelerate wage gains - or at least not to the extent the Bank of England hopes. Remember the Bank is currently forecasting wage growth of 3.5% in 2018 (vs. around 2% today).”

“That's a key reason why we don't expect a rate hike this year, although we could see a fairly mixed message today from the Bank as the hawks and the doves continue to disagree on the trade-off between weak growth and rising inflation.”