Purchasing Managers’ Index – are we really recovering?

This week's CIPS/Markit Purcahsing Managers' Index  (PMI) for Services in the UKwas a cracking 58.4 (where a figure over 50 indicates  growth).

So things must be getting better, yes?   CIPS chief executive David Noble said: “After the snow-related blip at the start of the year, the services sector is pretty much firing on all cylinders now".

Well, that might come as a bit of a shock to many struggling firms (and I know a few); and although it may be sacrilege to question it, has the Index lost its magic?  It has been suggesting a much more robust recovery in the UK for some time now than that indicated by official statistics.

And for the first time I can recall, some economists are beginning to challenge quite how good an indicator the index is. As the Guardian reported,

"Colin Ellis, economist at Daiwa Capital Markets Europe, cautioned against reading too much into one month's data. "The bottom line is that the PMIs have not been a particularly good guide to activity during the recession so far," Ellis said.

"With a massive fiscal retrenchment also in train after the election, the UK economy is definitely not out of the woods yet – and today's data is certainly not a good reason for the MPC to change monetary policy tomorrow."

Interesting, and we will watch forthcoming offical data with interest.

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