UK services growth eases off but remains robust as companies and consumers show resilience
Susannah Streeter, head of money and markets, Hargreaves Lansdown:“Companies and consumers are shrugging off high borrowing costs in their commitment to keep spending, driving more growth in the services sector. The wheels of activity are continuing to whir more quickly, although growth has eased off slightly, and companies are still taking on more staff. This is likely to be a reaction to hopes of better times to come, with interest rate cuts eyed on the horizon. There is a risk that this could make robust wage growth more stubborn, a scenario the Bank of England does not want to see emerge, with policymakers keen for more evidence that core inflationary pressures will see a sustained fall before they cut rates. Input costs for companies remain stable but still elevated, due to higher salaries and increased fuel and transport costs, and although firms are raising prices at their slowest pace in six months, inflationary risks will remain a worry.
Investors are, for now, pretty sanguine, with both the FTSE 100 and FTSE 250 edging higher on the print. For now, they are sitting on the sunnier side of the fence, seeing more reasons to be cheerful amid fresh optimism about the UK’s economic prospects. The composite PMI snapshot, which averages manufacturing output and services activity indices, showed a slowdown in growth but still a pretty robust upturn in private sector activity. This adds another piece to the picture of the UK slowly moving away from recession.
The FTSE 100 has edged back up towards the psychologically important 8,000 mark, and is flirting once again with all-time highs, but it will need another catalyst of confidence to shove it over the line. Mining stocks are leading the charge higher, amid hopes of an upturn in the prospects for China’s economic recovery, while banks are also on front foot, with Lloyds, a bellwether for the UK economy, gaining 2%, and Barclays up 2.2%.”