UK services PMI beats expectations, but remains close to multi-year lows, emphasises economic slowdown

Markit/CIPS Services PMI for May beat expectations, coming in at 53.5 vs 52.5 consensus and 52.3 previously. PMI posted a partial recovery from April’s three-year low, however, remains close to multi-year lows (April’s figure was the lowest since early 2013).

Details of the report continue to suggest that the near-term outlook for the sector remains subject to some considerable headwinds. The result compared to manufacturing survey and provides further evidence, on top of recent labour market and business investment data, that firms are delaying hiring/investment in response to uncertainty surrounding the result of the EU referendum.

Backlogs of work continued to shrink and growth in new orders softened meaningfully, which collectively do not point to a durable resurgence. Data reinforces the impression that growth in the dominant and domestically facing service sector has softened further in the second quarter of 2016.

"As such, we expect growth in the second quarter to slow to between 0.2% and 0.3% QoQ, which would reflect the lowest rate of growth since 2012. Should the UK vote to remain in the EU, we expect a rebound in activity." said ING in a report.