The services PMI was better than expected in November, indicating modest growth in activity. The headline index of business activity increased to 52.1 from 51.3 previously (consensus: 50.5, BarCap: 50.2).

The new business index however fell further (to 52.3 from 53.2), with slower growth in new orders mainly as a result of the fragile economic environment and public sector funding cuts. The business expectations index fell slightly (67.4 from 68.5) but remains consistent with strong business confidence as respondents were optimistic that activity would pick up in the future and some commented that the Olympic Games next year should give a boost to activity. Employment fell at a faster pace in November (48.2 from 49.8) as companies carried out forced redundancies following lower-than-expected incoming new business.
 
The input price index rose slightly in November (59.0 from 58.2) and continued to be consistent with above average price increases. The prices charged index also increased slightly (49.9 from 48.6) but is consistent with broadly flat prices in November. Companies reported that competitive pressures and discounting in order to stimulate demand had led to prices charged being flat on the month despite the rising input costs.
 
The headline index improved slightly in November, but we think it is questionable whether this improvement in activity is sustainable against the backdrop of deteriorating economic conditions. While the survey indicates that business confidence remains at healthy levels, this is difficult to reconcile with significant cuts in payroll numbers, slowing new orders and the squeeze in profit margins that other parts of the survey suggest. Our PMI-based calculations indicate GDP growth would fall slightly in Q4 if the PMIs were to remain at the current level in December, which is broadly consistent with our forecast for -0.1% q/q growth in Q4 (see chart).
 

source: BarCap