THE TAKEAWAY: UK PMI for services rises to 51.5 in January -> PMI supports hopes for economic growth in Q1 -> Sterling tests 1.5800

The UK services industry returned to increased activity in January, according to Markit’s Purchasing Managers’ Index. The PMI for services was reported at 51.5, beating expectations for 49.5 and higher than December’s 48.9 PMI. The UK services PMI dipped below the neutral 50.0 result in December for the first time in two years.

New business increased modestly in January despite severe weather, as panelists indicated improvement in demand and better market confidence. Markit said that services providers were confident in a rise in business activity over the next twelve months.

The UK economy declined 0.3% in Q4, and is now one quarter away from a technical triple dip recession. Bank of England Governor King has said that a gentle recovery is underway in the UK, and the PMI’s seem to support that forecast. Markit Chief Economist Chris Williamson said, “A huge sigh of relief accompanies these numbers, as a return to growth of the service sector in January greatly reduces the likelihood of the UK falling back into a “triple-dip” recession.

The British Pound rose 50 points against the US Dollar in the hour ahead of the PMI release, and tested 1.5800 before unwinding some of those gains. The key 1.5800 level may continue to provide resistance, and a 5-month low of 1.5674 may provide support.

GBPUSDDaily: February 5, 2013

Sterling_Tests_1.58_on_Return_to_Increasing_Services_Activity_body_gbpusd.png, Sterling Tests 1.58 on Return to Increasing Services Activity

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to .