UK services PMI offers faint glimmer of hope for BoE – ING

James Smith, developed markets economist at ING, points out that at 51, the latest Markit/CIPS PMI of UK economy is a touch better than in April, but nevertheless suggests the uncertain backdrop is continuing to weigh on growth.

Key Quotes

“Beneath the headline figures though, we think there are two glimmers of light for the Bank of England.

• Firstly, Markit/CIPS noted that the rate of job creation was the strongest for six months. On one hand, this could be a continuation of a recent trend whereby some firms appeared to increase hiring to offset lower investment, on the basis that staffing levels are easier to change in future given the uncertainty surrounding Brexit.
• The other ray of hope for the Bank of England stems from costs. As has been the case for some time, the report indicates that wage costs are rising (partly linked to the tight jobs market, but also the marked increase in the minimum wage over recent years).
• Given that wage growth has been a key pillar of the Bank of England’s argument for further tightening, this latter point suggests that a rate hike later this year shouldn’t be 100% ruled out. Don't forget that Governor Mark Carney hinted back in May that markets are underestimating the central bank's tightening plans.”

“In reality though, we think it is much more likely that the Bank keeps policy unchanged for the rest of 2019.”