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Instant View - UK services PMI shows unexpected fall, mortgage approvals up
January 4, 2013 / 9:43 AM / 5 years ago

Instant View - UK services PMI shows unexpected fall, mortgage approvals up

LONDON (Reuters) - Activity in much of Britain’s services sector fell in December for the first time in two years, data showed on Friday, suggesting the economy as a whole slipped back into contraction in the last three months of 2012.

Separate Bank of England figures showed the biggest monthly rise in mortgage approvals since January 2012.



”If you look at the whole raft of PMI data which came out over the course of recent days, we have a weighted number ... that’s an indication of the extent to which the economy has lost momentum as we reached year-end.

“Whether or not it will pick up in the course of the next few months, we remain hopeful but we have to bear in mind that we’re starting from a very weak base and there’s not a lot we can do other than wait for a couple of months to see whether these things turn around.”

“We’d pencilled in a small negative (for growth in the fourth quarter) and I think we’ll stick with that. Whether it’s -0.1 pct or worse remains to be seen, because it’s very difficult to translate from the PMI numbers to the growth figures. But all the evidence that we do have suggest that a modest contraction in Q4 seems likely.”

”Quantitative easing will remain on the back burner for the time being.

“I remain of the opinion that the Funding for Lending scheme simply means that the supply of mortgage credit has increased but I‘m not convinced that there’s a big appetite at the moment in an environment of household deleveraging for a big pick-up in demand and I think the decline in mortgage lending in November reflects that lack of appetite.”


“UK data were mixed this morning, confirming the idea that the UK economy is not out of the woods yet.”

“The December Services PMI ... was weaker than expected.”

“The Services PMI index is now running at its lowest level since mid-09, when the UK economy was in a deep recession. We rule out that such a decline in activity will materialise near term but today’s data certainly don’t bode well for Q4 GDP.”

”As for the UK mortgage market, today’s BoE’s mortgage approvals data ... is broadly in line with expectations and it marks the strongest reading since January 2012.

“The BoE’s credit conditions survey showed a substantial improvement in Q4-12 (report out on Thursday) and supply of credit is expected to continue to progress in the next three months or so. This is good news for the BoE as the Funding for Lending programme seems to work its way through the real economy, supporting the troublesome UK housing market.”


”The first fall in service sector activity for two years raises the likelihood that the UK economy is sliding back into recession. The services PMI follows an equally disappointing construction survey for December, leaving manufacturing - which accounts for just 10 percent of the economy - as the only bright spot.

”Taken together, composite data from the three surveys posted its worst quarterly performance for three-and-a-half years, and are consistent with the economy contracting by approximately 0.2 percent in Q4.

”Bad weather is likely to have played a role in dampening service sector activity in December, but the fact that incoming new business dropped for a second successive month suggests that underlying demand remains very weak and that activity may continue to fall in the New Year.

“The service sector is also cutting employment in the face of weak demand and an uncertain outlook suggesting unemployment may soon start to rise again as private sector lay-offs add to public sector job cuts.”

Reporting by David Milliken

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