$UK - Services PMI Strengthens

• Newswires report that the services PMI rose from 54.5 in January to 58.4 in February, its highest since January 2007 – and the jump of nearly 4 points is the biggest one-month gain for over 10 years. This follows other signs of fairly strong growth in the manufacturing PMI, and recent surveys by the CBI. The official GDP data show only modest growth in Q4, but already have been revised up from 0.1% QoQ to 0.3% QoQ and may well be revised again.

• The MPC have been highly sensitive to swings in the PMIs and other cyclical guides over recent years, usually tightening once the PMIs have been above average for a sustained period -- and easing once the PMIs have clearly fallen below average (with the speed of response depending in part on whether inflation is above or below target). For now, of course, the MPC are firmly against hiking rates, but in our view there is little chance that they will expand QE and add more stimulus at tomorrow’s meeting. Indeed, the sharp upturn in the PMIs, if confirmed across other cyclical guides and GDP data, creates the preconditions for the MPC to exit the current ultra-low policy rate later this year, especially if inflation expectations surge and the UK continues to lack a



UK - Services PMI Strengthens