LONDON- On Monday, a business survey showed that British companies are optimistic about a surge in the service sector despite continued economic stagnation, after PM Boris Johnson’s election victory last month.
Since September 2018, the business expectations component on the Purchasing Managers’ Index (PMI) has hit its highest level and for the first time in 4 months, order books increased.
In December, the overall PMI went up to 50.0 from 49.0, higher than November’s 49.3. The index, however, has not exceeded the 50.0 threshold since August and the readings are in line with the findings of no economic growth in the fourth quarter.
Investors are optimistic of Johnson’s election victory impact on the sterling and not long after the PMI report, it did rise modestly.
The release suggests that there may be a post-election bounce for a few months in the data with improvement in confidence, according to Thomas Pugh, the UK economist at Capital Economics.
If this is confirmed in the first two months of 2020, that shall be enough to keep the Bank of England’s rates at 0.75%.
PMI noted that the upward revision to the business expectations index was the largest since mid-2015.
Some businesses are concerned about Johnson’s refusal to ask for a transition period extension which may lead to another cliff-edge Brexit, even with a new EU trade deal by the end of the year.
A sustained optimism might be a surprise, unless Johnson extends the transition period or finds methods to deepen the trade agreement, according to John Springford, deputy director at the Centre for European Reform think tank .
(Photos syndicated via Reuters)
This story has been edited by BH staff and is published from a syndicated field.