Services sector rebound implies that risk of recession is looking more remote - EY ITEM Club comments

5 September 2016

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  • August’s services PMI sees a record jump…
  • …implying risk of recession is looking more remote
  • But growth in Q3 is still on course to run at a very subdued pace

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“A rise in the headline activity balance of the CIPS services survey exceeded economists’ expectations and represented the biggest monthly jump since the survey began in 1996.

“The details of the survey showed that a recovery in total activity was accompanied by a rise in new orders to a four-month high. Employment also expanded, following stagnation in July. But the inflationary consequences of a weaker pound appear to be making their mark in the services sector – input prices rose at the fastest pace in 33 months.

“The strong recovery in all three CIPS surveys in August suggests that the likelihood of a recession this year is looking more remote, in line with our view. However, a composite PMI, which weights together the sectoral PMIs by their respective shares in the economy, points to an economy that will struggle to see much growth in Q3. Our expectation, allowing for the official and survey data available so far, suggests that GDP will expand by around 0.2%. So while the gloomier predictions around the EU vote are unlikely to be realised, the economy is not out of the woods yet.”