Service with a smile

I was interested to read that the services sector grew in January. The MPI (Managing Purchasers Index) for services recorded growth of 51.5. Anything above 50 shows growth (a reading below 50 shows contraction).

Why is this important? It's important because services i.e. everything from shops, restaurants to hotels comprises three quarters of the British economy. Thus, the services sector is a good indicator of the health of the British economy.

But what does it have to do with commercial Landlords and Tenants? Landlords need Tenants in their properties. Above all, they need their Tenants to make a profit and pay their rent on time. Tenant businesses can only make a profit if people are buying their goods or services. That is why the services PMI is important.

Will the growth continue? Some would argue that the figure would have been higher had it not been for the snow in January. That said, economic growth was disappointing (at 0.3%) in the last quarter. Inflation still remains above the Bank of England's target. The services MPI may have pursuaded the MPC to put its quantitative easing (QE) programme on hold. But this may not be the case for ever. Mervyn King will step down as Governor this year. His successor, Mark Carney, has indicated that the MPC could focus on nominal GDP or Employment targets. We will have to wait and see whether or not Carney advocates a more liberal use of QE. If he does, inflation could be pushed even higher- which will have a knock on effect in the services sector!

For now, the services sector remains resilient and Landlords can rest easy that their rent will be paid and that their Tenants will continue to trade and make a profit. That said, the economic outlook remains uncertain- not least in the Eurozone. Let's hope that Landlords and (crucially) their Tenants can continue to provide service with a smile. For their own sakes and for the sake of the wider economy.

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