Bank’s rate cut on a knife edge
ECONOMIC activity hit a 16-month high in January in what has been a “decisive change of direction” that leaves next week’s Bank of England decision on the interest rate on a knife edge.
Some economists talked down a cut after a very closely watched snapshot showed dominant services gathering momentum and the manufacturing sector’s slowdown easing.
The Markit/CIPS flash purchasing managers’ index (PMI) data showed the first reading above the 50-point mark denoting growth since last August, following the sharpest increase in new work since September 2018. The index jumped from 49.3 in December to 52.4 last month, above forecasts of 50.
The survey noted “widespread reports” that reduced uncertainty after the general election had a positive impact on business and consumer spending decisions at the start of the year. Optimism for the next 12 months is at its highest level since June 2015.
Manufacturing, which makes up 10 per cent of GDP, “stabilised” despite the ongoing weakness in export markets, while services – 80 per cent of the economy – saw “solid increases” in activity and incoming new work.
IHS Markit chief business economist Chris Williamson said: “It seems likely that the rise in the PMI kills off the prospect of an imminent rate cut.”
Paul Dales, at Capital Economics, said the data would “probably be enough” to prevent the Bank monetary policy committee (MPC) from cutting rates next week. Investec’s Philip Shaw suggested it would be the “least predictable MPC announcement for some time” but he expects the rate to be held at 0.75.