UK services PMI increase beats forecasts, but order books falling

The UK services sector unexpectedly grew in the first month of 2016, according to the Markit/CIPS services purchasing managers' index (PMI).

The UK services sector PMI grew to 55.6 in January, up from 55.5 the month before and ahead of expectations of a fall to 55.4.

Readings above 50.0 signal growth of activity compared with the previous month.

The growth of total services business activity was boosted by new business rising at the sharpest rate since last July.

Markit added that, though services employment growth was at a three-month high, the 12-month outlook was the weakest seen in three years.

With the ‘all-sector’ PMI hitting a six-month high of 56.0 in January, Markit's chief economist Chris Williamson said: "The UK economy exhibited signs of fortitude in the face of multiple headwinds in January, with growth edging higher despite intensifying uncertainty about the business outlook. However, cracks appeared in economy's resilience, as a slowdown in hiring and waning order books raise doubts about the sustainability of such solid growth."

He added that the three PMI surveys for January collectively pointed to a slight upturn in the UK rate of economic growth, consistent with GDP rising at a quarterly rate of 0.6% in the first quarter, up from 0.5% in the fourth quarter, if current levels are sustained.

"However, order book backlogs are already falling at the fastest rate for almost three years and companies have scaled back their hiring in response to growing uncertainty about the economic outlook at home and abroad."