- Britain's dominant service sector expanded at a slower pace in February than in the previous month, a survey showed on Monday.



The fact that we are down in February doesn't come as a major surprise given the rebound we saw in January. If you take the whole raft of PMI numbers together - construction, manufacturing and services - it continues to suggest that we're going to get a positive Q1 GDP reading.

The services number was a lot weaker than expected, but it's still significantly above what's happening in the euro zone.

The policy (QE) is on hold at least until May. And at that point we will see where we stand with regard to the economic indicators.

If we continue to see weakness or more likely contraction, then that's the point at which the Bank of England might decide to engage in more QE. But if we hovering around where we are now, maybe slightly higher, then I suspect that that might be a good argument for remaining on hold.


February's UK CIPS/Markit report on services echoes the manufacturing survey released last week in suggesting that the recent pick-up in the economic recovery is already starting to lose momentum.

Admittedly, the drop in the headline business activity index from 56.0 to 53.8 essentially just reversed January's jump and the index still points to reasonable quarterly growth of services sector output.

What's more, a weighted average of the surveys is consistent with positive quarterly GDP growth of about 0.4 percent, indicating that the economy is still on course to have avoided a technical recession in Q1.

However, the surveys have not been a perfect guide to the official GDP figures and it is notable that other activity indicators have been rather weaker than the CIPS surveys.

Indeed, we still doubt that the recovery can maintain its recent momentum when there are still so many fundamental constraints on growth.


It's a little bit disappointing but has to be seen in the context that it rose 4 points in the previous (two) periods.

At a pace of 54 it's still a decent rate of expansion for the biggest share of GDP output.

The fact that the expectations rose also raises hopes that this isn't the start of a downtrend.

More QE is an option but it's not screaming out that we need further emergency stimulus.


In line with the manufacturing numbers, the services index has fallen back and the decline is slightly more than expected. Nonetheless, it still leaves the index in solid territory and the net result should be that, not just the services sector, but the economy as a whole, expands in the first quarter of this year. Growth looks set to be modest rather than stellar but it should be growth nonetheless.

The policy outlook is a difficult question. Our view is that we'll probably see more QE because the level of growth is still set to be below trend and uncertain.

But the QE debate will of course be influenced by how sticky MPC members think inflation is going to be.