Wednesday, March 05, 2008

UK service sector activity accelerates

The FT reports today that UK service sector activity for February accelerated:

The Chartered Institute of Purchasing and Supply and NTC Research said their index of service sector activity rose from 52.5 in January to 54 last month, indicating faster expansion. Analysts had expected the index to weaken to 52.

So much for the supposed "slowdown" that the more excitable parts of the press are reporting.

As I've said before, keep an eye on the oil price. In the absence of a supply shock, a strong oil price indicates strong demand and that the world economy is growing. During recessions, when the world economy contracts, the oil price always drops - because among other things there are far fewer trips made by distributors from warehouses to stores in recessions.

The American services sector also performed better than expected. I think history may judge that the Bank of England and the European Central Bank called it right when they refused to panic by cutting interest rates sharply during last year's credit turmoil. The US Federal Reserve though may have cut rates too much.

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