UK recovery

Chris Giles

For those following the UK’s economic recovery, there is little to cheer in today’s closely-watched indicator of the services sector. For the Bank of England, there is every reason to be pleased.

The CIPS services purchasing managers’ index fell sharply from 53 in November to 49.7 in December, a level associated with stagnation or contraction in the sector. New business was down too, as was employment. Since surveys do not intrinsically matter, the reason to worry about the CIPS survey is that it has a better record than most at foreshadowing the actual output of the private services sector – the area of the UK economy which needs to grow reasonably strongly if the recovery is going to be robust.

As the chart shows, the latest reading on the official index of services also dipped in October. Put the two together and the fourth quarter of the year starts to look rather weak.

Why is this excellent news for a Bank of England?