Small rise for July surveys
FURTHER improvements are expected in the forward-looking CIPS/Markit purchasing managers’ indices (PMI) due out this week, although economists caution that the rises will only be modest at best, indicating a weak recovery for the UK economy in the second half of 2009.
The service sector, which accounts for about 60 per cent of UK GDP is expected to inch higher above the critical 50 mark that separates expansion from contraction.
George Buckley, UK economist at Deutsche Bank, sees new business activity rising to 50 with overall activity standing at 52. He said: “We see further modest improvements in July, consistent with our view that economic growth recovers to a relatively slow pace going forward.”
But Jonathan Loynes at Capital Economics remains sceptical, given that the 0.6 per cent drop in services output in second quarter “left the survey looking significantly out of kilter with the official data. The survey had actually been pointing to modest growth in services output”.
Loynes remains equally pessimistic for the manufacturing PMI, noting that the temporary boost from firms running down their inventories less quickly will eventually fade. And there are few signs of a pick-up in underlying demand to drive the recovery instead.
But David Page at Investec sees some hope in the rise in the Confederation of British Industry’s quarterly business optimism index, which picked up again in the third quarter to reach an 18-month high.
As the PMIs are forward-looking they will certainly be closely watched by the Bank of England ahead of their policy decision on Thursday.