Services activity in the U.K. slowed sharply in the second month of the year, raising concerns that the economic recovery is too fragile for policymakers to tighten policy to contain high inflation, according to The Daily Telegraph. On Thursday, the Markit/Chartered Institute for Purchasing and Supply fell from January’s eight-month high of 54.5 to 52.6 in February, nearing the critical marker of 50 that indicates contraction.
The weak data was seen by Alan Clarke of BNP Paribas as “a game changer” that would likely mean a rate hike in the coming months is not a “done deal.” Markit economist Paul Smith noted that lackluster services activity growth would mean the sector would be less able to absorb public sector job cuts that are expected as part of government austerity measures. Markit said the PMI data suggest that the U.K. economy will expand by 0.5% in the first quarter, although the underlying trend for growth is closer to 0.2%, but received a boost from pent up demand following harsh winter weather at the end of 2010.