Lip Service

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What's going on?

The UK and China both posted fresh data on the level of activity in their economies’ crucial services sectors on Friday. There was sunshine in China – but rain in the UK. Typical…

What does this mean?

Activity in China’s services sector – i.e. most jobs that don’t involve “making something” – rose to its highest level in six months in December. That’s good news for a country that’s keen to reduce its reliance on the heavy industry that made it a global powerhouse and instead grow consumer spending as a proportion of its overall economy: it’s currently 40%, compared to the UK’s 80%.

That all-important services sector is barely growing in Britain. A Friday report from the Bank of England also showed that consumers reduced the growth of their borrowing (and, by extension, their spending) to its lowest level since 2015 in November. That’s likely due to higher interest rates making borrowing more expensive, and slowing house price growth making homeowners feel less flush.

Why should I care?

The bigger picture: China’s working on it.

On Friday, China’s central bank announced a cut to the percentage of deposits Chinese banks need to keep in reserve – essentially tapping into the country’s piggy bank. The hope is that the newly freed-up cash gets loaned to people and companies, who in turn spend more on products, services – and on investing in future profit growth. Economy-boosting measures were promised by the Chinese government after a spate of dire data late last year and early this rattled investors’ confidence in the health of the country’s economy.

Zooming out: Poor service at Café de Paris.

Yet more data out on Friday showed that growth in the eurozone’s services sector continued its losing streak to reach its lowest level in over four years in December. France was the worst off – its services sector actually shrunk last month, with disruptions caused by the “gilets jaunes” protests largely to blame.

Originally posted as part of the Finimize daily email.

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