Sluggish UK data lowers chances of rate rise

“Disappointing” data on the UK service sector has lowered the chances of an interest rate increase next week.

The IHS Markit services purchasing managers’ index rose to 52.8 in April, but was not as strong as expected.  Last month, official figures showed the UK economy grew 0.1% in the first quarter – the slowest rate since 2012.  Given recent weak economic data, analysts say it is unlikely the Bank of England will raise interest rates at its policy meeting next week.

Chris Williamson, chief business economist at IHS Markit, said

The disappointing services data will add to expectations that the MPC (Monetary Policy Committee) will take its finger firmly off the rate hike trigger,  any further slowing will also raise questions as to whether the November rate hike may have been ill-timed.

April’s purchasing managers’ index of 52.8 was an increase from the March figure of 51.7. Any result above 50 indicates that the sector is expanding.  However, activity in March was curbed by bad weather and economists were expecting a stronger rebound in April.  “Following today’s data, nobody can have strong conviction that the economy’s Q1 (first quarter) slowdown will be just a blip,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.  He said that weak growth and inflation figures released last month had already made a rise in interest rates in May unlikely.  But the latest figures would make the MPC even more cautious over future rate increases, he said.