The latest UK purchasing managers index (PMI) data adds to the weight of evidence that the British economy is starting to pick up.

This could impact the decision making of the Bank of England when it meets for the first time this decade next week.

Signs of weakness in the economy in the fourth quarter, linked to Brexit uncertainty, had prompted speculation the central bank might cut its benchmark interest rate from 0.75% to 0.5%.

The flash IHS Markit/CIPS composite PMI reading hit 52.4 up from 49.3, this compared with a consensus forecast of 50.6. This was the highest level since September 2018.

The services PMI hit 52.9, up from 50.0, which was also the highest mark since September 2018 and above consensus at 51.0. Manufacturing PMI hit 49.8, up from 47.5, the highest level since April.

As a reminder any number above 50 indicates industry expansion, while anything below suggests contraction.

ING developed markets economist James Smith says: ‘Markets are still divided on whether the Bank of England will cut interest rates at its first meeting of the decade next week. But at 52.4, the latest UK composite flash PMI number is likely to sow further seeds of doubt among those investors looking for policy easing next week.'

Smith says the data adds ‘to a body of evidence from sentiment data that optimism has increased since December’s election result’.

He adds: ‘The real question though is, can this renewed optimism translate into an upshift in UK activity over the next few months? We’re not so sure. Since the election, it has become clear that the UK government’s preference is not to extend the post-Brexit transition period. That sets up the tough, albeit not impossible, task of negotiating a basic free-trade agreement this year.’

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Issue Date: 24 Jan 2020