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Weak UK Services PMI another reason for BoE rate hike delay - ING

FXStreet (Łódź) - James Knightley from ING comments on the UK Services PMI numbers released today and showing an decline to 56.2, below forecasts of a drop to 58.5.

Key quotes

"This is the weakest reading for 17 months and when the manufacturing and construction numbers are added to generate the composite index we get a reading of 55.8 – also the lowest reading since May 2013."

"This is disappointing, but with the index remaining well above the 50 break-even level it remains consistent with decent GDP growth. We predict another 0.7% QoQ outcome, which would leave full year 2014 growth at 3.1% the best figure since 2003."

"Still, the PMIs do back up other readings showing a slowing in the UK economy’s rate of growth."

"Then, with inflation running at just 1.2%, housing activity seemingly losing some momentum and wages still effectively flat lining it is not really surprising that some of the Bank of England’s Monetary Policy Committee are sounding a little more dovish on rates."

"Nonetheless, the recent GDP revisions show that the economy has less spare capacity than originally thought and with the economy continuing to create jobs in significant numbers we suspect that wages will gradually respond, especially now that the national minimum wage has just been increased by 3%."

"So, while a rate hike this week is out of the question and February is looking pretty unlikely we think that the economy is strong enough to justify action in 2Q15 after the April General Election. It may not be May, but we doubt that the BoE will wait until 4Q15 to hike as financial markets are currently pricing."

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