Services Pickup Provokes a Spot of Brexit Amnesia

(Bloomberg Gadfly) -- Brexit? What Brexit? U.K. companies have an even sunnier disposition in March than they did in February, according to a survey published on Wednesday.

IHS Markit's Purchasing Manager Index for service companies rose to 55 from 53.3 (signalling faster expansion), while its composite gauge, which includes manufacturing and construction, climbed to 54.9 from 53.8.

This was enough to send the pound up by around 0.4 percent against the dollar and euro soon after the report was published at 9:30 in London, and the currency has hung on to much of those gains.

That optimism should be short lived. Uncertainty over Brexit held back some investment decisions, and the overall picture was one of slower growth in the first quarter, according to Markit.

While the pound's post-referendum weakness fueled demand from abroad, the report showed, don't take that as a sign that foreign spenders may yet save the day. It's far from certain that will be enough to offset weakening consumer demand and faster price gains. Retailers aren't included in the PMI, and some, such as Next Plc, are already girding for a hit to shoppers' spending power.

The benefits of a weaker pound may have to be pretty substantial to counteract the squeeze that's coming.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Jennifer Ryan is a Bloomberg Gadfly editor. She previously reported on economics and corporate finance for Bloomberg News in London and New York.

To contact the author of this story: Jennifer Ryan in London at jryan13@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net.