–UK Jan CIPS Services PMI 54.5 Vs 49.7 In Dec – Markit/Reuters
–UK Jan All-Sector Output Index 56.2 Vs 51.6 In Dec – Markit

LONDON (MNI) – The UK service sector, and the broader economy,
rebounded in January after contracting in a snow-hit December,
according to the Purchasing Managers Index from Markit.

The Markit/CIPS PMIs combined output/activity index spiked to 56.2
in January from 51.6 in December, hitting an eight-month high. This
followed the sharp move up in the service sector PMI, which rose to
54.5 from December’s 49.7.

Markit downplayed the rebound, however, saying the combined
December and January data suggested that while the economy did expand
“the rate of growth was only modest”, approximating to quarterly GDP
growth of 0.4%.

The January services PMI showed the strongest outturn since May
2010. This was further evidence of mounting inflation pressure. The
input prices index for January hit its highest level since August 2008
and saw the biggest monthly rise since the survey began back in
mid-1996.

These high input prices are being passed on, at least in part.
The services prices charged component rose at its fastest pace since
September 2008, with Markit citing the impact of the Value Added Tax
hike and rising costs as key factors driving up prices charged.

The survey found higher prices were most notable in the hotels,
catering and restaurant sectors, which have been hit by higher food
prices along with the VAT hike.

The combination of a rebound in activity and further evidence of
inflation pressure will fuel speculation the Bank of England’s Monetary
Policy Committee could hike Bank Rate sooner rather than later.

The CIPS data highlight – “the risk of the BOE surprising with a
hike sooner than we think. While we don’t expect a move next week, it
is worth bearing in mind that the MPC will be making its decision
against a backdrop of the whole economy PMI around 56 (close to the
average at which they’ve hiked before) and high inflation,” George
Buckley, economist at Deutsche Bank, said in a note.

–London newsroom 0044 207 862 7491; email:drobinson@marketnews.com

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