Services PMI in first expansion since October

The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) slipped to a seasonally adjusted 51.3 in February from 51.9 in January.

A reading above 50 indicates economic expansion, while one below 50 points toward a contraction. But they were still relatively optimistic, with 48 per cent forecasting a rise in business activity over the next 12 months, compared to 13 per cent expecting a decline.

Additional staff intake was linked to long-term expansion plans and new product development.

Markit's Williamson said the PMI's fall left it around levels more consistent with a further rate cut by the Bank of England than an increase.

Moreover, it mentioned that the services firms sought to pass rising costs on to customers by way of raising their own selling prices.

On the prices front, input cost inflation accelerated and service providers also raised their charges so much so that "the increase in output charges was the first in five months and the most pronounced since mid-2016", the survey said.

"The ongoing steep upturn in costs suggests that consumer price inflation has significantly further to rise, adding to our belief that inflation will breach 3% over the course of the next year", Williamson added.

Having said that, Chris Williamson, chief business economist at IHS Markit, said: "The burning question is whether the February slowdown merely represents some pay-back after a strong start to the year for USA businesses, or whether it's the start of a more entrenched slowdown".

Civil engineering overtook housebuilding as the main growth driver, as residential construction rose at its slowest pace in six months. January also brought more service jobs, but the increase was at a slower pace.

"A PMI reading above 50 shows the sector is still expanding, albeit at its slowest pace since September".

Paul Hollingsworth, UK economist at Capital Economics, said the picture for first quarter growth still looked "respectable" but the economy faces headwinds from inflation and Brexit negotiations.

"The labor market is also starting to boom, with jobs being created at the fastest rate for almost a decade", said Chris Williamson, chief business economist at IHS Markit.

  • Zachary Reyes